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 MrMortgageTruth@gmail.com 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 MrMortgageTruth@gmail.com

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. The Fannie/Freddie and FDIC loan mods in a box are typical government solutions. They leave the homeowner in a situation worse than before for many reasons but one primary problem is that they can’t just walk away after the modification because the bank now has recourse. That means they are on the hook for the entire amount. It should be a requirement that the homeowner is advised of this in writing before they make this potentially fateful decision.

  2. Loan Modification– I understand your argument for loan reduction as the major component of solving the housing problem. I think you are looking at the problem through the California lens alone. I am from Wisconsin and we never had the run up in home prices. I currently have a friend who built a home 25 years for a little more than 200K. Now he is trying to sell and would be happy to get 375K. The house price blowout states’ problem was caused by aggressive and sometimes dishonest realtors, mortgage brokers, mortgage packagers and banks. Low property taxes and the non recourse mortgage loan statute in California contributed to the problem. Now you want the rest of the country to bail you out.

  3. Agreed – but CA represents 33% of all foreclosures and 45% of the dollar amount. Add in AZ, NV and FL, which could all benefit and the numbers go to 55% and 60% respectively. Solving the default crisis would do much for putting a floor under housing nationally.

  4. Just walk away. The govt needs a dose of reality.

  5. I have one question that I hope the experts can answer for me:

    In the era of widespread pooled, tranched mortgage securitization, how does one perform a mortgage modification? Thanks in advance.

    References:
    (1) Mortgage Morass – Forbes
    http://tinyurl.com/7rmlel
    (2) A Mortgage Paper Trail Often Leads to Nowhere – NY Times http://tinyurl.com/6tzyxq
    (3) One in Three Modifications Result in Lower Payment – Housing Wire
    http://tinyurl.com/7m4hnn

  6. i think mr. mortgage does great work, but u would be doing the most help, if you told EVERYONE just to say they are WALKING AWAY , this message needs to be smashed into Washingtons collective face and NOW……NO RECOURSE loans, PRINCIPAL REDUCTIONS across the board or else EVERYONE WALKS AWAY !!!!….its now 2009 and no more time can be wasted waiting for the pinheads in DC to understand simple math or wait for their savior Barry Hussein

  7. Mr. M. I know of a freind (husband and wife) that attempted to do a loan mod a few months ago on their Countrywide (BofA) loan (they have since walked away and are now renting and doing quite well I might add). What was shared with me and I must admit I did not see the actual paperwork, was that the terms were way to stringent. They never mentioned recourse as part of the deal and maybe that was because they never got that far into it. What was shared with me was the fact that the lender just demanded what it expected and really didn’t give them a lot of options. A take it or leave it approach is the sense I got. With that being said they were over their head and desperately required a principle reduction to have any chance of having it work as a long term solution. They stood their ground on this (I advised my friend as well on that point) and were basically in the end told no way. The lender never agreed under any scenario to do a principle write down but yet demanded them to do the modification under thier terms (if I recall it was a 5 year balloon note on the waved principle of their adjustable mortgage). They just up and left the home since and left it to the lender. A lose-lose if you ask me, but they really had no other viable option presentd to them in my opinion. I personally think they made the best decision giving the options at hand, but again I never had the priviledge of going over all of the paperwork. I do know that today they are in pretty good shape and doing much better in their relationship and their lives as a result of their decision. Their has to be something said for that doesn’t there?

  8. Javagold – What do you mean “principle reudctions across the board”? Are we talking all outstanding loans get some sort of reduction in debt? Who pays for this? Banks can’t take that sort of write down and stay solvent. Do we have our major banking system fail, as that’s what we’re talking about? I think instead of entering into all these mortgage mods. Why not work with the investors? Allow for tax credits for new buyers, allow for accelerated depreciation for investors with no passive loss limits. Change useful home life to 15 years from 27.5 essentially doubling the amount being depreciated. Give a 20K tax credit to home buyers with no income limit. This would gobble up the inventory in no time. It would also pass the homes from the imprudent to the prudent. Allow investment guidelines through FNMA or Freddie to uncap the number of homes a buyer may purchase. Instead of the 4 homes now allowable. All of these things would increase the implied IRR with respect to these investments, thereby encouraging capital to flow in.

  9. Have a sister that worked at a loan mod company (that runs ads on CNBC) as she tells it fees where about 4k pull through rate was about 10% if you want more info. I can get it for you. As far as myself
    I have never done them. I thought most of them where scheisters as my sister found out. There are a lot of shady outfits doing them. I am sure there are good ones I just don’t know of any.

  10. Since we bought our house in 2005 for a good price($91,000 for 1500 sq. ft.), and already have a 5.75% rate, I do not feel the need to do a loan mod. I have been paying around 50 to 100 extra every month as well. I do not know if we are underwater or not. the house next door, exactly like ours, sold for $105,000 last month, so I think we are alright.
    My wifes parents home is fully paid for, nothing there.
    My parents bought at a good price and rate in 2002, so nothing there.
    Most people I know in Oklahoma City have owned there homes for some time, and I do not know anyone that is doing a re-fi.
    My wife and I are facing other problems though. She got laid off in October and has been unable to find a new one as of yet. End of year is tough time anyways. I got laid off due to a plant closure(one of 7 that company has done in two months) on Dec. 31.
    So both of us are now out of work, and needing to find jobs ASAP. There does seem to be plenty of them out there at this time. Question is how many people competing for those jobs. Unemployment in Oklahoma is still around 4.5 % at this time.
    So, I guess we’ll just see, won’t we!
    Regards to all.

  11. There is one lender, Wells Fargo, who wanted to conscript some properties for inclusion in their REO properties. Though denied formal entry into residential Real Estate Brokerage in 2005 (I haven’t found any legislation that said “yes” after that), they have built a nationwide network of REO properties that they can continue to re-securitize. They are not interested in loan modification. They have sunk their tenacles deep into some communities where they can control their “investments” and resecuritize over and over again. The people in those homes are simply “commondities” and they have written into contracts their right to approve a new lender. The only way out of this for some of us is if we demand that foreclosures be halted nationwide until the Congress and Senate come to a full understanding of the National Bank’s vision of the future — an oligopoly where they offer a “one stop” shop for all your financial needs.

    I think a little collective outrage with some demands of our own when Congress comes back in session might be in order. Anyone interested?

  12. I get aggravated at the Principal Reduction talk. Let’s face it, people took the gamble and lost. Mr.M you act as if the big bad lenders forced loans down the throats of poor borrowers. NONSENSE! Anyone with half a brain to ask simple questions would have realized the type of loan they were getting into.

    I am a renter in San Diego and I am waiting patiently for homes in decent areas to come back down to earth. Principal Reductions will delay this necessary price reduction.

    Also, let’s say that you reduce Borrower A’s principal, and Borrower B across the street sees this and says to himself: “Gee, my neighbor just had his Principal reduced, maybe I should stop paying on my loan and get my Principal reduced too.” This will happen in spaded if lenders start writing down principal. It is just Stupid to suggest that this tactic be seriously considered.

  13. Housing Realist: I submit that just about everyone that purchased btwn 04 and 07 could be considered imprudent at this point. I think we need a product recall

  14. Javagold, what do you mean the banks can not take that kind of write down and stay solvent.

    Mr. Mortgage: I am a part of a Unit #87 that spent the better part of the 90’s in the Valley (Ca)working within the procedures of Countrywide, Ocwen and BoA as a special unit focused on mitigation to analyzing key investor exposure and risk. Since Jr. High when I was cleaning the bull pen for Countrywide in the early 80s to high school spent my days and nights cold calling out of phone books, my 20s where spent originating loans, as a jr in some major acquisitions Ca, Az and Las Vegas to managing retail branches (loan origination). As a unit(15 individuals) we spend our time these days helping family members and friend obtain “True Loan Modification” which include principal reduction (Java), reduction in interest rate (including 5 to 10 years freezes at abnormally low rates)and DTI ratios of 28/40. The fact that a bank/mortgage servicer will use the word modification even when they add dollars to a homeowners principal balance or when the program is a forbearance based temp solution-when they have the ability to provide true modification-per their master servicing agreement-which allows them to achieve the pre-represented fiduciary responsibility. Instead the banks choose to spin the word modification and freely take homeowners homes while begging, not lending and stealing American Taxpayers TARP funds. The basic loss of investors that have their banks fronting BK to Paulson to get TARP funds to retire senior debt is troubling since the public at large have no clue. Tax credits and the gobbling up of inventory will come at larger losses to investors due to actual sales prices 20% to 50% below encumbered amount of each home. Tax credits mean nothing when underwriting guidelines to obtain a loan is like forcing a bowling ball through the eye of the needle. The housing market was destroyed by the gambling investors and lack of regulation as to the representation of certain loan products-which made these investors billions of dollars. So until there is mass principal reductions as a staple to all loan modifications the stabilization of the housing market will be talk from incompetent government officials requesting another 700 billion in bailout dollars. We will continue to force banks to sit at the table and provide true loan modifications until the people figure out our children and their children will be suffering and paying for the blinders wall street has directed our government leaders to place on the American people. I wish it was a easy as just telling everyone the way, but with the crooks that with use the formula to steal from homeowners and banks that have no intention to have their weaknesses exposed and it’s their lack of desire to do anything other than receive billions in free bailout dollars from the Taxpayers of this great Country. For the record, we are not a loan modification company nor do we advertise in anyway or market. We either know you or you know somebody who knows one of us to get the help required. 98.9% of the people who say they do loan modifications can not do anything more than what the homeowner can do already and 99% of that is forbearance programs masked as loan modification. One homeowner at a time until people simply get educated and wake up!! Sorry for rambling but Java’s comments are the very thing that is adding fuel to the fire, instead of water which is the solution to the continued destruction of the American Housing Market & economy it is not going to end anytime soon. Big Business Rules our government officials make no mistake…

  15. Correction, Housingrealist is the one who posted company line non-sense. SORRY- JAVA!!!

  16. Stu, great story.I wish we only had more.

  17. You said it in an earlier comment here, 60% of the dollar volume of foreclosures are CA, AZ, NV, FL – thus why should the rest of the country agree to participate in this principal reduction scheme? In Texas I will not get anything out of it, other than keeping a bunch of insolvent banks running longer.

    I would like to see some statistics on how everyone thinks this “cram down” plan is going to actually work. With unemployment rising, I bet a substantial percentage of cramdowns won’t work past 6-9 months anyway. I do not care if housing is a zombie investment for 20 years – it shouldn’t be an investment!!!

    Rather than calling a program that knocks everyone’s loan down to what they can afford at 28 or 31/36 a “cramdown”, I have another word to call this:

    SOCIALISM

  18. In 9/2003 I had a chance to buy a house for $900k. The owner was asking $1.275M and he caved in and told me I could have it for $900k. I still was scared to buy it at that lofty price. A few months later the house sold for full asking price of $1.275M. I have been watching home values in that area and on Zillow. Today, the house is worth $723k and the town has it asessed at $883k from a couple of year old assessment.

    So, the buyer today on paper lost $552k.

    This is serious money and I doubt even if the market recovers that they will ever be able to sell in the next 10 years for more than $800k on this property.

  19. Mr. M. a question for you.
    Percentage wise, how much more do you feel the price of housing needs to come down before you feel it will become affordable again? Have you a ball park # in mind??

  20. My friend had a house in San Diego for over $500K in late 2006 after huge discount. He thought he got a deal, and planned to have it as a future investment property while he already got an apartment for his family. Then during 2007, housing price sunk. He asked for refi, lender refused. He quit, with 6months free staying. Finally in 2008, his house was taken over.

  21. I agree with guys not from CA, I am in VA now, housing here is not that depressing as CA. However, this depressing really provides chances for investors, and housing market in VA, TX or other country states all together perhaps counts only a very few portion of the total market. Say, in southern VA, the total population is even less than that of a small town of Los Angeles. So, who cares about housing other than CA and FLA?

    I know whole bunch of Chinese came cross Pacific Ocean buying houses in Riverside, Stockton with pure cash, although this kind of investment will not save the whole market.

  22. Mark, I suppose a great story would have had them keeping their home, but I agree it worked out to be a good story for them personally. In my opinion they would have simply pushed off the inevitable and perhaps ended up divorced on top of it all. Their relationship was quite strained as a result of everything at the time. As I said they appear to be doing quite well in that regard today so I applaud them for doing what was right for them personally over the social stigma of giving up their home.

    I still think lenders will awake to the fact that principle right downs are the only option they have if they want to slow down the tidal wave of defaults. Obama and his team already know this so maybe the lenders are simply squeezing what they can out of the lemon before he takes office and passes legislation to allow cram downs. One way or another principle right downs will exist as part of the overall modification landscape in 2009. Anyone that thinks otherwise is not paying attention. This country is ill prepared to deal with yet another 3-5 million forclosures politically, socially and economically.

  23. Midland Mortgage will not even discuss with me any sort of workout, period. My 420,000 house is now worth 250,000 and going down fast, (San Bernardino, Ca). As a result of the increase in taxes on my 2,800 mortgage that is now 3,200 interest only and set to adjust fully amortized in 2011 near the bottom of the market I have decided to walk away. The government provides a wonderful incentive to be free from any 1099 taxes through 12/31/2009, and Ca is a non-recourse state. It is so much better to stop paying my mortgage, and stay in the house as long as possible, saving about 15,000. The cost to move into a rental anywhere from 1,000 – 1,500 less than my current mortgage will allow me to continue saving and have sufficient down to purchase a home for much less in 2014-15. Since the market turn, there is no other viable option and smart money says do it. I do struggle morally, but I do not want to put my family in to any more turmoil than necessary.

  24. To all of you who think those of us about to lose everything we worked decades for “deserve” what we have coming to us:

    My husband and I belong to one of the largest churches in Northern VA. After suffering severe neck injuries in an accident that went inadequately treated because by husband is Asian. As there were a large number of immigrants in the contruction industry, some in the medical profession and the insurance carriers refused to provide standard care. After five surgical fusions, unable to adequately care for our rapidly growing triplet girls, we turned to the pastors of our church and asked for the name of someone they trusted as a mortgage broker so we could get our home in order and move. We walked straight into the predatory jaws of Wells Fargo. They aided and abetted something the FBI call Affinity Fraud. To a tragic story short, we were deceived by the two “brokers” who actually worked and was paid by the settlement attorney. We found another company to take us out of the mortgage, but Wells Fargo went to our credit agencies and told them we were in default. We weren’t. Not until they forced us into the ARM rate, which by that time destroyed us financially (I had two more surgeries after we had signed the devil’s bargin)and into complete insolvency did they so generously correct their mistake. For those of you who really think that lenders did not rely on sick socio-paths to break every law in the book including lying, forging and withholding disclosure statements all in the name of “helping” a family, please do not be so “trustful.” We once were and believed in such principles as “in good faith.” Wells Fargo has for years be called predatory, even by its shareholders. My husband and I were not stupid, irresponsible, or dupped. We trusted in the reputation of a national, supposedly regulated bank. That should never be a crime. Abusing trust should be. And Wells Fargo is very guilty.

  25. I did successfully get a loan modifications, but certainly agree with Mr. Mortgage on the issues surrounding a modification’s effectiveness in contrast with leveraging one’s self with an over-valued asset. Nonetheless, I fail to see what a “mortgage modification firm” can accomplish as any modification is only as good as to what terms the investor on the loan is inclined to offer. Many aren’t offering much – in fact; many are still offering zero. While knowing the system and contacts may be a plus, in my 10 months of negotiations with my lender I can tell you that re-working mortgages is not real high on their priority lists. I was offered a loan mod, turned it down – then attempted a short-sale for four months. The short-sale process was a waste of time, they would never act on (answer)offers. It certainly probably did give them a boost to work with me though after realizing a sale (short) would mean a $200k or more bath.

    After the short-sale saga, I asked for another modification and got pretty decent terms; but principal reductions aren’t happening. I don’t think you’re going to see those unless there is some sort of mandate for them. I would feel much better personally paying a higher rate on a lower balance, that the low rate of my loan mod on an underwater balance. But I’m not gonna hold my breath waiting for that offer.

  26. Call me crazy, but if the house of cards in mortgages were built on lies from both the bankers and the owners, then the only way to recover is to lie about something else. Otherwise, the whole system can implode quickly.

    Any mortgage modification plans have to first realize the problem, both the bankers and owners lied (or one or the other). So when you have everything stacked on a wobbly foundation, you have to be VERY careful or the whole thing can shift and be reduced to a stack of sticks.

    So we are here trying to do things right in recovery when everything was done wrong in building the bubble. Face the music, one of the two parties (or both) will have to undo the original lie by committing another lie to keep the economy from tanking further. Call it what you will, but reworking loans or modification is just another form of a lie.

    So my suggestion is the following since no one wants to get caught lying now:

    1). All loans made between 2004 – 2007 should be made whole by further govt bailout. Forget this complaining that it is rewarding someone, since further erosion of the economy is going to affect everyone anyway. And those that scream bail out, look at what our Congress has done already…which has not focused on the basis of the problem, which is a lie. So either yank the rug out from under the economy and yell “We did it the right way” or lie is back down slowly so it can begin to recover.

    2). The fake value that banks placed on their assets will be paid in full which will settle their loan payoffs (step 1). They will then clear their books and begin to recharge the recovery effort.

    3). New US laws must be passed that begin to address the valuation process that accounting use on assets.

    4). New tax laws that will allow people (not businesses) to buy first time homes to receive a “HEALTHY” credit. This will help begin the real estate engine again.

    We could have already done this with the amount of money wasted bailing out the banks and automobile makers. Sure, you can say its not right and hurts the tax payer but right now the tax payer is hurt without anything that is offered to at least help.

  27. Casper87, please tell me how across the board principle reductions would work. It can’t. With the total outstanding mortgage debt of roughly 14.8T, please share with me how an EQTUITABLE write down across the board would work without bankrupting the system. Javagold has suggested in prior posts that ALL loans entered into post 2002 should be rewritten to 2002 or prior market values. Furthermore, why should the investors/vultures and the prudent renters who said “the emperor has no clothes”, not be the benefactor from this bust. Once again, taking tax money and giving to the imprudent is not the right answer. Neither is bailing out the banking system. There are a number of quality banking insitutions that have been waiting for this opportunity to take market share, but the gov’t intervention is preventing this process from ocurring. No more hypotheticals, please describe what you have in mind, and the amount of money to rewrite the mortgages in question. Once you have that figure, please compare that figure to the aggregate amount of equity on bank balance sheets, and tell me how they stay solvent. They won’t stay solvent! That means the gov’t(you & I) is going to have to pick up the 2T+- that would have to be written down. I can almost guarantee the posters who are crying for a principle reduction are those that bought in overvalued areas, and are now lamenting the purchase.

  28. bithead:

    Your suggestion of a ‘fix’ of some form is coming, courtesy of the government. In the end, it’s not going to matter a whole lot. Sure, it may keep some in their dwellings for a few additional months or years perhaps.

    What many people – including well-meaning types on this forum, in government, even your neighbors, fail to grasp is that there is a Macro socio-economic transformation taking place right now. A transformation from profligate spending, to saving brought about not of choice, but of conditions sustained previously by a mentality of borrow & spend, as opposed to produce & save.

    And there is no reversing this ‘new’ trend towards frugality. Of course, the government hasn’t shown any signs (nor will they anytime soon) of reversing their spending trends, but it won’t matter, because the 72%-of-GDP-consumer-spending metric has just been hit amidships by the twin missiles of bankruptcy & unemployment. And the more they find new and innovative ways to tax in order to shore up dwindling coffers, the more people will be forced into frugality and saving. And thus the ‘circuit’ continues its path.

    That the spending public (consumer) no longer has the disposable wherewithal to ‘contribute’ to the economy is not even the issue. It is that he no longer has a desire to spend due to the personal financial trauma he is now experiencing.

    The government, the banks, the lenders – nobody is going force that tapped-out ‘consumer’ to reverse his newly found course towards saving and debt-reduction, just to go out and ‘spend’ some more on ‘stuff’ he doesn’t need.

    I suppose perhaps, when it really gets going this year, the government will do what they’re doing Down Under – just sending the people ‘stimulus’ checks. And what do you suppose they’ll do with those checks, given the current climate?

    Peace –

    C.C.

  29. I hope all of you realize that any kind of forced cram-downs (unless explicity underwritten or backed by the Federal government, i.e., a transfer of wealth from myself to the overextended, mortgage app lying, never-should-have-bought crowd) will put every major bank in the U.S. into bankruptcy/insolvency.

    Wells, Citi, BofA, none of them have the balance sheets to take all of these writedowns on their books. The only thing keeping this house of cards going is the ability for the companies to twist the auditors arms into the values on their capital.

    The only way to finance these cramdowns is thru the Feds and us as taxpayers (if you define “taxpayers” the way Obama does with his refundable tax credits to non-payers, then we are all taxpayers) and to spend the next 30 years paying off thru higher taxes the subsidy that keeps a janitor in Northern CA in a $500,000 house.

    What a country!!!!

  30. Ahhhh. But JJ, that Northern CA janitor isn’t in a $500,000 house. He is finding out to his growing horror that the MSM lied when they said that housing would go up forever; the Realtor lied when they said that he should buy the biggest house as he could afford; the broker lied when they told him that he could sell or refinance the house in a couple of years to get him in a loan that made them more money in fees; the appraiser lied on the value of the house to keep his job; the bank lied when they said that his 590 FICO score was fine/the ARM payments wouldn’t change immediately/that spending 50% of his income on mortgage was reasonable so they could sell his loan to Wall Street; the broker’s notary lied when they said that he didn’t need to read the paperwork before signing it; Wall Street lied when they said they were spreading the risk . . . now he realizes that he lied to himself and he didn’t really want to own that %@&$*#^ house after all.

    Of course, if all of the janitors walk away from their houses it’s going to bring Wall Street’s financial house of cards down on all of our heads. This is why we are all trying to find a solution here that maybe hurts everyone a little instead of destroying the USA as a whole.

  31. Curiouser & Curiouser: where is the personal responsibility in all of this? Yes, the real estate industry is full of a bunch of pushers who just pushed everyone on all of these things but this boils down to some type of perverse 1st Grade defense – “Johnny told me to do it!”

    Read the friggin’ disclosures on the loan!!! Tell them you won’t sign if they rush the documents at closing!! I cannot believe that there are that many folks who did not understand what they signed up for. Maybe some did not fully COMPREHEND it but a simple look at most docs tells you the rate, max rate, prepayment penalties, etc. The illegals and others who got sold on the loan by their Spanish-speaking advisors or mortgage brokers probably got lied to but we can’t outlaw stupidity from the rest.

    Most just wanted to feel like part of a Countrywide or Ameriquest commercial and further the Democrats (and Bush’s) quest for homeownership to all even though most shouldn’t own a home.

  32. Okay.. so my husband and I were “conservative” and didn’t bite off on the big arm mortgage to get our bigger house…. now instead of the people defaulting so we can buy their home at current value… you want to save them… WHAT? Mr. Mortgage I am SHOCKED! Gosh..lets just reward all the bad behavior…. come on…. If they reduce Homeowners priciple that is going to be scary..NO NO NO!!! These are the folks that haven’t made a mortgage payment in 6 months Arnold gives them another 3 months.. now you want to refi them and forgive their $400K mistake? Am I getting this right… I SAY NO!!!

  33. Mr. Mortgage,

    If these cram-downs are done, how do you propose to protect new buyers? Will these cram-downs show up in the MLS so that appraisers know what the actual value of the house is? Or, will appraisers only see the price of the house as it was when it originally sold?

    I think this cram-down idea of yours is a pretty horrible idea. Say you have 4 similar houses in a neighborhood. Further, imagine that 3 of the 4 houses sold for $500K during the bubble. The current incomes of the 3 buyers are $40K, $80K, and $120K respectively. So now you have 3 cram-downs to x, 2x, and 3x respectively ~ 3 wildly different values for similar houses in the same neighborhood. What value would an appraiser put on the 4th house? I guess using your logic, the appraiser would value the house based on the prospective buyer’s income.

    Further, what if the $120K guy loses his job and can only find new employment at $40K. Does he get another cram-down? What if he just quits his job? Is his entire loan forgiven?

    I think your cram-down idea leads to all sorts of horrible, unintended consequences. Instead of massive socialism across the board, we just need to let the market run its course. If that means that millions are foreclosed upon and have to rent and that every big bank in America goes bankrupt, then so be it. Let all the idiots, liars, and cheats fail and prudent people like myself who purposely didn’t partake during the bubble (because I knew it was a bubble) will be there to pick up the pieces and rebuild.

  34. My husbands brother just lost their home to foreclosure… They tried to do a loan mod with Countywide…. milked it for over a year.. A YEAR WITH NO PAYMENTS! with no payments WHAT KIND OF GARBAGE IS THAT? …… and then ended up filing BK.
    OBVIOUSLY THE BANKS ARE NOT SHORT SELLING THESE FAST ENOUGH.. WHAT IS THE DEAL THEY JUST WANT TO KEEP THEM ON THEIR BALANCE SHEET?

    I THINK THE GOV IS OKAY WITH PEOPLE STAYING IN THEIR HOMES WITH NO PAYMENTS BECAUSE THEY ARE OUT IN THE ECONOMY SPENDING THEIR MORTGAGE MONEY!

  35. Lisa, that is why I say walking is like like getting a government grant that you don’t have to apply for, or pay back. It is free money. Lisa will get the bill for it later…. The government has said that deficits don’t matter and we should believe them.

    If housing prices are not rising and at the very least will be flat for a number of years, then there is no leverage working for you, only debt and leverage working against you. A leveraged investment only works when prices rise.

    In the beginning of a loan all you are doing is chipping a small portion of principle and a lot of interest. That is made up for with increase of house value but only if prices are rising. If prices are falling then the leverage wipes out any benefit of what you were chipping away at.

    All this does is makes not owning and saving at this point in time a superior move. The non owner can build his net worth every month while the homeowner is going backwards even though they are paying down the principal amount on the loan. The moment you stop paying you can start building your net worth, take the free grant money and say thank you very much. Naturally all are not in this position to do so but for those with a non recourse loan well underwater, it appears to be the way to go.

  36. I love Mr. Mortgage and hang on his every word!! But I say…Do not help ANYONE get a loan mod. I purchased my home in 2004. I waited a whole year while it was being built. During that wait the price increased $100,000! I could not believe my eyes. Everyday I checked the builders website the price increased $2,000, $5,000, $8,000!!!

    I did not have to pay the higher price because I had it locked in the day I signed the conract for it to be built. I was “suckered” in to a 5/1 arm interest only loan. YES “suckered” in. I have owned other homes in my life and always had 20% with a FIXED 30 year mortgage, which was what I intended to get on this home. But while there, the loan officer kept pushing me to get the 5/1. They even sent people from other stations in to get me to “see the light” on why it was such a good deal and I would be dumb not to get it.

    After much consideration, I figured, well I have already made $100,000 by just sitting here and I was putting down $40,000 of my own money and so that meant I had $140,000 of equity…what could I lose! Why not pay the lower mo payment for a few years then refi. Simple right???

    Right after I moved in the prices climbed another $10,000!! Now I had $155,000 of equity. The purchase price of my home was $195,000 and now similar ones in my neighborhood sold for $305,000. The banks were calling me left and right trying to get me to take a second mortgage out. I refused.

    Good thing for me because 7 mos after I moved in I suddenly found myself in a divorce situation. Now I really needed that lower payment. But still I was “ok” or so I thought…

    As I slowly watched prices dropping…dropping…dropping…and inventory rising…and building come to a screeching halt…I paniced. What if I went underwater? What if I could not sell? I figured I better do something. So I called my realtor and had her do a appraisal for me. She felt I could get $225,000. I said…”SELL.”

    I did not want to sell. This was my dream home. I had no where to go. I felt that if I had not acted, I would end up like everyone else. She listed it and nothing. So she had the realtors tour it. Her broker felt that it was worth $190,000. I told her to drop the price. What else could I do?

    Well, luckily it did sell. But the buyers wanted to use the DPA program AmeriDream. I had never even heard of it. They wanted ME to put up THEIR downpayment out of my earnings!!

    I had come to this purchase with $40,000 of my own money. MINE. And they wanted a piece of it. Well obviously I could have not accepted their offer, but then what? So in the end I came out of it with my perfect credit score, and $7,000. I am renting.

    DO NOT MODIFY ANYONE’S LOAN. They should have sold and chose not to. I had to do the right thing. Now they either have to do that or lose. Sorry. I guess that is what investing is…a gamble. And Real Estate folks, is a gamble. It should not be because it is supposed to be a home to live in. But because the fat cats let it get used like that (selling to investors etc) the average American is suffled around in the sesspool.

  37. Right.. the delinquint home owner should be kicked out of their home 2 months of not paying… unless there is some dire reason they can’t pay… but this 6 months… a year RIDICULOUS!!!

    Bitter party of 1… your table is ready

  38. JJ said: Most just wanted to feel like part of a Countrywide or Ameriquest commercial and further the Democrats (and Bush’s) quest for homeownership to all even though most shouldn’t own a home.
    Many lives, dreams and aspirations are being impacted by this crises and will have permanent scars by their experience with “homeownership” I believe this is going to be a painful process that needs to happen, but we also need a bit of compassion for those that thought they were doing things the way they were suppose to. First time home buying is a fairly complicated process for many and with the help from others they trusted or believed were helping them achieve this. Generalizations and judgments about how people found themselves in this predicament isn’t very useful.

  39. Lisa,

    They are in no hurry to foreclose because so long as the loans are on the books it looks good on paper. Once they foreclose and sell at a loss, they have to book the loss. It isn’t the homeowner getting the best of the mortgage company for a few months/year of free rent. It’s the mortgage companies/investors not wanting to mark down a portfolio asset by 50%. It’s all about liquidity, and apparently $350 trillion, wasn’t nearly enough.

    Don’t hate the player, hate the game!

    By the way, I’m still paying on my underwater mortgage like a good little sheep.

  40. Lisa, I am not trying to pass moral judgment into the situation. Our morals as a society have gone downhill. I am just looking at it strictly from a mathematical point of view. Chances are you got screwed going into the home, take what you can get on the way out.

  41. I have compassion for the guy with a family and two kids who lived in an apartment for 5 years to save money up to put 20% down on a house while his neighbors did stated-income, teaser rate option ARM loans thru a HUD or other housing program with 1% down and then defaulted en masse and erase his 20% equity. He’s screwed and they’ve got 6 to 12 months rent in their pockets for not paying their note.

    I flat do not buy this “we didn’t know we couldn’t refinance” or other crap argument. I am not in the mortgage business but a cursory look at loan docs will show the basic terms. The race-based groups have already played the race card on this – everyone is a predatory lender to minorities and poor folks.

    Not everyone should go to college but we expend massive amounts of resources to get the bottom 25% of a high school class up to “college ready” when they would be better served going to a vocational or other school. IT IS OK TO BE A RENTER!!!

  42. I hate to say it but America is a democracy. So when EVERYONE is underwater all logic is thrown out the window and the objective is to get everyone’s head instantly above water at any cost.

    I have a college degree in Finance and worked on Wall St. for 13+ years. I got a 1 MTA POA. I didn’t know how it fully worked until I “experienced” it and all the resets after 5 years.

  43. Mr M,

    I think your modification proposals are the only alternative to walking away for any “homeowner” with half a brain. Given that potential losses on 7.5 million foreclosures/principal reductions are $1.5 trillion at a $200,000 average, one has to wonder why there is such resistance to principal reductions and fear of foreclosures. I mean with the $8.5 trillion already committed by the Treasury and the Fed, they could easily soak up all the at risk negative equity tomorrow.

    You have better resources than I, but I suspect the answer lies in all the side bets placed by the banks on the performance of these loans via credit default swaps, CDOs and other synthetic derivatives. Could it be that a $100,000 principal reduction/foreclosure loss actually results in a $1 million writedown as the side bets go bad? As I understand it, the 30, 40, 50-1 leverage as well as the level 2 & 3 assets are mostly made up of these types of “assets.”

    If this is the case, it would certainly go a long way to explaining why the politicians are so hell bent on “keeping people in their homes,” the banks so unwilling (or unable) to reduce principal, and Sheila Bair’s plan to con desperate Americans into becoming indentured servants.

  44. One way we could get this all sorted out would be to set up an “agency” that’s sole purpose would be to determine the borrowers “viability” In other words, an impartial judge and jury or arbitration of sorts that would look at each situation for each troubled loan, and recommend a course of action determined by discovery. If the panel determines the borrower should go rent, out he goes. If found that he deserves to stay, he stays.

  45. MM, again you’re concentrating on:

    1) Brokers
    2) Home owners

    _______________

    how come you don’t ask:
    3.) ex owners that already lost their home
    4.) renters
    5.) investors
    6.) pp ready to buy
    7.) owners that paid off the home

    Are we discriminating??

    This problem goes beyond housing. Do we want to make this problem worse?

    Let the market fix itself, it always has..the faster the drop to bottom, the sooner the recovery can start.

    The more bailouts we do, the fix will not be in our life time… we’ll be slaves for a long time!

    but if pp walk away, two years later (with lesson learned, savings, budgeting, new life style.. spend within our means and prices that are afordable, we can turn this around!

    remember the damage is already done, the problem spreaded beyond housing already, there are more important things to take care of now, versus reducing someone’s balance (without learning anything) so he/she can refi again, and start using that ATM again!

    I vote NO!

  46. My simple question garnered zero responses…the silence is deafening. That’s all I needed to know.

  47. Bert Dilbert-
    I didn’t get screwed because I didn’t buy in the bubble …. but I will get screwed if they forgive the upsidedown mortages… I agree with ex_ owner… let the system correct… the people like me who did the right thing and saved and waited will now get our turn. I am not passing MORAL judgment… its call consequences to your actions.

  48. Justme – It would be extremely tedious trying to complete a mod. on a home that has been securitized. The servicer would have to determine the tranche(s) affected by the mod. and get to the decision maker for that security. Once they’ve determined who they need to talk to, they can find out if the owner is willing to negotiate. Imagine one home in a CDO Squared that is held in a European pension plan. That is the conundrum!

  49. Off topic as far as Mr. M’s original request is concerned, but I think the anger directed toward homeowners obtaining modifications is misplaced. Homeowners who obtain principal reductions are not paid for by those of us who abide by our contracts, own our homes outright or rent. The cost is absorbed by the institution or investor who currently holds the mortgage.

    The fact that our government has decided that no holder of mortgage paper should absorb the slightest loss and is reimbursing actual losses with our tax dollars, borrowed dollars and newly printed ones is the right place to direct our anger.

    If I “owned” a $250,000 house with a $500,000 mortgage, it would take me about 10 seconds to inform my servicer that I’m not paying another dime until I get a brand spankin’ new 30-year fixed at a maximum of 6%. If they blow me off and choose to foreclose, well…go ahead, make my day. I can rent the house down the block for 1/2 my current monthly nut and increase my net worth by a quarter of a million.

    That’s not immoral nor unethical. It’s capitalism. I win, they lose. That’s the basis of Mr. M’s plan and that’s why it’s the only one that works.

  50. Justme, In CA they passed a law to allow the lender to work out a deal. I did not read your links BTW. Naturally the holders of the MBS are going to seek recovery no matter what from the servicer on the loan. If the lender is trying to get an immunity from predatory lending in the process, naturally the MBS holder is going to claim a value the lender received.

    If the servicer offers a plan that is likely to be refused, then they do not have to worry about being sued because the home owner will refuse the offer. This does not keep the banks from being sued, only the angle of attack the MBS holders will use as the legal mind works around whatever roadblocks are laid in path.

    I believe the MBS holders have a valid claim in any circumstance and will eventually figure out who the defendants are. The Federal Reserve Banks of San Fransisco and Atlanta which cover the primary bubble states will need to be brought in as defendants so that discovery can begin. They are private corporations and have the right to sue and be sued. They have a legal responsibility to report conditions existing in their districts, it is the law. From this level I see no immunity as they are not operating as a central bank in this capacity. From the top down approach they are fairly well protected but from the bottom up in failing their duty they are vulnerable.

    I would love to see legal take this approach and have them produce the reports to the Board of Governors. Failure to do so leaves them sitting ducks for a civil action. If the reports show that they indeed correctly reported conditions to the board, then they are in the clear. If they did not, then they should have known or were reckless in not knowing.

    Supposing they correctly reported conditions. That places blame on the Board of Governors who are authorized to act against banks making crappy loans by closing the discount window. The Board then has to show that they either closed their eyes or were overridden by the President. If they acted on their own to do nothing then it becomes likely that the housing bubble was an extension of monetary policy.

    In any event, true discovery will only start when the Reserve banks in the bubble states become defendants and the discovery process begins. The Federal reserve can do one of two things. They can settle at the reserve bank level or they place the entire Reserve System in danger.

    I would really like to see someone get moving on this angle of attack because everything else falls short of the truth. Isn’t the one thing we all want to know is how could this have been allowed to happen?

    We deserve answers.

  51. ex-owner: I agree I also have a NO vote on loan mods. (as I am an ex-owner now renter as well see above)

    Lisa: Yes you SHOULD get your turn and let’s hope you do! If they let the system correct. And I may have another chance to be a homeowner again as well. I did not get a bailout and in my opinion…NO one should! This is not moral judgement on our part…it’s common sense!! Someone has to have it. :)

  52. Mr. M,
    Wow a lot of passion over this. I’m one of the first time buyer lemmings out here in San Diego, and I can see the bitter people’s points. I shouldn’t be rewarded for the now obviously incredibly dumbazz decisions I made over the last 3 years, but if it’s between giving me a break and a housing induced depression I think most should vote for the former. I’m not qualified to know what will happen if owners like me keep getting loan mods rejected or offered the “temp interest rate reduction” but I’m starting to think we’re going to find out. It must be sooo much easier for them to foreclose/short sale/deed in lieu then put in the work to process 400 loan mod requests a day.

    I have started 2 mods with Green Credit Solutions in Aug and Sept 08, one for a rental that has turned to a short sale, and one for primary residence. Neither has resulted in a loan mod offer from servicers. Recently I was so fustrated I even posted in your Green Credit forums about lack of contact from GCS, Randall helped me out and I have regained faith in GCS. But like you say, if the banks/servicers take a stand and don’t offer the principal reduction, what can the 3rd party do?

    I’d be interested in hearing what you meant by “I am working on a solution that may make this process very inexpensive on both the home owner and the bank.”

    If not for you and GCS, here I stand ready to swallow my bitter pill in 2009…. bring it on banks…

  53. It doesn’t look like we are helping Mr.M with his research to date. This is such a hot button for most that it’s hard to just provide the examples that Mr. M is looking for. The few examples I’ve seen mentioned don’t really provide the detail that would make them click into one side or the other for principle writedowns.

    My aunt is an old school real estate agent from L.A. just retired a year back after 50 years. In 2001 I was living overseas and I asked her to find me a house in S. CA. and she told me Kurt, it just doesn’t make sense anymore, in 97 I could have gotten you a lovely house for 250k and now that house in 01 is 500k. I’ve gritted my teeth a few times since then because that example house she talked about went up to 800k. What an investment, right? Well, her advice looks a little more savy today now doesn’t it? With that house sitting at 560K now?

    What is really getting to me is that I’m still overseas and still interested in buying a house in CA. When I look at that house I was looking at in 01 I’m not thinking, what a fantastic bargin. It’s only up 12% from the original price in 01. Instead I’m thinking, why would I want to buy a house that has gone up 124% since 1997 in CA? The next thing that comes to mind after reading this blog is, why would people want to fix this problem and put a floor under a market that has appreciated so much? Do we really think that this will “save” our economy? Sorry folks but a lot of stupid decisions have turned homes into an investment. Forget the “this is my home” thinking. People now play the home real estate market just like they play the stock market and they have been doing that for years. No matter how we may personnally feel about our homes, or our bad investments, we have to let this bubble deflate.

    I’m not helping with the data collection either I guess. All I can say is there are a lot of people, current and former Californians, interested in buying into this market when it really becomes affordable. Not when the gov’t sets a floor and tells me it’s affordable. Lets grit our teeth, grow some cojones, and forget about setting a floor under this bubble.

  54. Kurt A: Here Here!! I am originally from So Cal and my dad still lives in the house I grew up in. He got it for $17,500 it went up to $800,000 and now back to $650,000. Does the government think that price should be the floor? Crazy. It is still the original house. No way! The prices need to correct. They have not yet in my opinion.

  55. The argument “we did the right thing….” and “these are the consequences for bad decisions” blah blah blah. WHO CARES? NO ONE. I don’t care that you made a decision that was good or bad. Neither do the banks. Your good decision was bad for bank profits during the hey day. The whole system was based on lies compounding on lies. Has our government to date done the right thing? Have they made the right decisions and just let the taxpayer deal with the consequences? I beg to differ if you think their decisions are on target. There are ONLY two ways to fix the mess we are in: start playing games with laws and valuation (lies) to slowly unwind or yank the carpet out and let the market handle it. Modifications are just a way to “lie” your way back down from the bubble.

    God help us if we just let the market handle it…might as well say that we should let the universe deal with global warming. That is about how much the market is in tune with main street. The bleeding has gone too far now to let the market handle it. Do you think the market really cares about the damage they can cause to taxpayers, business and governments so long as they “work it out”.

    People losing their homes don’t care about this crap, and need to have options to fix the problem they are in, but all the attention seems to be placed on helping banks right now. Why not use the same creativity used to build the bubble to help people stay off the streets. The government brainwashed everyone that owning a home was the right thing to do, heck it even supported the economy and was patriotic. And now they are telling us to SPEND, SPEND, SPEND to help out economy. You can’t say “I did the right thing” unless it was good for your risk tolerance and situation. YOUR RISK TOLERANCE is not shared by everyone and if the government wants to tax 30 fixed mortgage holders to fix the mess they will to cover their a$$.

    Hey, if banks can lie to get you into a loan, and consumers can lie to get into them, then what lie can we start using to fix the situation?

  56. I dont’ mean to sound hostile… just passionate! And I watched my sis in law go thru the “loan Modification”…. now forclosure process.

  57. Redeye – “That’s not immoral nor unethical. It’s capitalism. I win, they lose. That’s the basis of Mr. M’s plan and that’s why it’s the only one that works.”

    1.) When is not living up to a contract immmoral?
    2.) If the game is the one you describe the most, do you realize what the mortgage market is going to look like going forward. If I’m a bank dealing with people who adhere to your statement, I want 35%-40% down. This will of course cause people to gravitate towards FHA, which of in turn is the tax payer taking the risk for people who adhere to your statement.
    3.) I guess that mindset also applies to credit cards/student loans/car loans etc. Once I get what I want, the hell with the contract I signed.

    This must have been what was Rome was like when the Ottman Empire came on the scene.

  58. Bithead, people losing their homes SHOULD lose their homes if they can’t afford it. Walk away and go rent for 3-5 years. If you can’t afford rent (i.e. “stay off of the streets”) why should you be a homeowner?Homeownership is not a constitutional right last time I checked. It’s no different than all of the welfare and Section 8 voucher mentality – I deserve this.

    I’ve given hope that anyone gives a crap about the big picture. Most of this is headed towards the government indirectly holding nearly all of the mortgages in the US – no private lender is going to lend at 4.5% if 50% of the people are going to walk at the first sign of a significant drop in their values or they are going to require 30-40% down. Since we all know that the average US family cannot afford to put 30% down and still afford the median house price in the bubble states, that is not an option so the government is going to backstop all of the continuing crap to keep the “affordable mortgage dream” going on.

    The reality is that most home markets are still overpriced by old-school standards and need to fall back that way which is why government should get out of the way and let the market level out quickly.

    The minute the foreigners flee Treasuries or require a true risk premium for US Government Debt, the game is over here and we are looking at a France-type of government and taxation scheme.

  59. Dick you make the point I have been talking about all along. You are edjucated and got a POA that has been my point all along. My point used to be that joe six pack did not read his doc’s. But after doing hundreds of loans you prove my point. If you listen to the pitch chances are you never read you doc’s after the shit head that sold it to you left. They are way to complicated. I have not even read my own doc’s as I can’t tell you what half of the mumbo zumbo means. I never sold POA loans never believed in them but you are not alone. And there are many more like you. Wake up folks cram downs are the only way to work this out. We are way beyond the (I pay my mortgage on time so FFFF the other guy)if we do not stop this donward spiral we are all in a world of hurt. We already are in my opinion MM and the other analysts are being way to conservative on where we bottom out when this whole mess gets worked out.

  60. I heard a description somewhere that I liked. This financial mess is like a whole bunch of mountain climbers roped to each other while climbing a mountain. If one or two of them fall, the others can stay up. If a few more fall, the rest will back slide, but can still survive. If too many fall at once, everyone falls off the mountain.

    No I don’t like loan mods. I absolutely HATE what Paulson and Bernanke are doing. But we have to look at ALL unintended consequences – not just of what we do, but what we don’t do. If Mr. Mortgage has an idea to ease people off the mountain without sending me tumbling after them, I’m willing to read it and maybe even email my Senators and Representatives about it.

    I am tired of watching friends and family losing their homes because they trusted the wrong person. That’s right trust. That’s the issue here. Buying a home is a massive undertaking that most people do once or twice in their lives. When they do this they have to find someone to guide them through the process and explain the legal gobbledy gook that they do not deal with in their day-to-day lives. That puts EVERYONE at risk for fraud when they do this even if they do read their docs. There is personal responsibility for failed mortgages out there. It’s mostly in the form of guilt, tears, sleepless nights and trying to figure out how damaging this is going to be for their kids. The people I know are not callously making decisions to to walk away or to foreclose to get free rent. These are people fighting to save their homes and are destroying their future one payment at a time. All the while they keep asking themselves “why didn’t I realize that(insert real estate related liar here)wasn’t telling me the whole truth?”

    Sorry Mr. Mortgage, I know everyone in your field was out to deceive, it just feels that way. I can’t share any loan mod stories with you. Nobody I know that tried for one got anything other than a bunch of fees added onto a longer mortgage.

  61. So people that can’t afford health insurance should lose a leg, arm or their life? People who can’t afford food should starve? Why should people lose their homes if they could afford them in the past, but can’t now? None of these are constitutional rights, but yet stating that they should go without because they got something or did something they could not afford is bringing the ENTIRE system down. If you were laid off tomorrow and had nothing to fall back on, you would want to lose it since you can no longer afford it?

    Renting is an option, but not in a society where FICO means everything. If people TRY to do the right thing and fall behind, their FICO starts going down. By the time they need to rent, FICO scores do not let them necessarily go somewhere else. Of course FICO in of itself is a fraud since it is based on SPEND, SPEND, SPEND.

    This whole problem is like a hurricane and depending on where you were in the spiral dictates what problems you will have. Some were on top, some at the bottom, but alot of folks are stuck in the middle and need options to help keep them from being a burdon to society. Congress has already said through its actions that EVERYONE must help the banks, automobile industry, etc. They were caught in the middle with everyone else, but I do not see one damn thing happening for the HUMANS that are home owners that are stuck in the middle as well. We need to get leaders in front of the problem and start making changes in “old world” laws that supported the bubble. Reset FICO or abolish it all together is one example out of many….but noooooo we can’t do that since everyone believes that they system still works, its the people that don’t.

    Time for leaders to start begin creative and present ideas for consideration that DIRECTLY IMPACT the home owners now, before its completely out of control.

  62. HousingRealist,

    35-40% down? That sounds about right, given that residential real estate has another 20% down to go nationally before it comes into line with historical methods of valuation and unemployment is headed toward double-digits, not even counting the folks swapping a $75k job for an $8 an hour one.

    As far as the contract goes, it’s pretty clear – if I don’t abide by the terms and conditions, you get the house. For the last 60 years, when houses were worth more than loans and you were foreclosing due to divorce, illness or job loss, you never said it was immoral or unethical to do so, and you did it every day. Now that I’m foreclosing on you, I’m the bad guy?

    You do have an option that is win-win. You re-underwrite the loan to reflect the my income at traditional debt limits. Until you start doing this again, as you did for 60 years, renting will be a more attractive option than owning.

    Rental vacancies are at an all time high of 10%. That number will drop as people disavow housing as an asset or an investment and view it simply as a place to live.

  63. Mr. Mortgage, you forgot to ask what the taxpayers think about this, as I don’t fall in your two categories. I think it is the single most outrageous idea EVER.

    “make the home owner a trapped, underwater, over-leveraged renter for years, if not life”

    They signed on to 30 year mortgages. Crocodile tears for those who should pay back the money they borrow. Crocodile tears.

    Is Mr. Mortgage upside down on his properties? Would he get a fat check subsidized by my tax dollars if his “plan” grew legs?

  64. Renting is not dying off the mountain…

    If one, two, or even a few fell of the mountain and they’re hurt… and then you need to pick up the rest so they don’t get hurt.. why not worry about those that are already hurt either??

    or worry about those that are about to climb the mountain, do the same mistake.. and possibly fall?

    BAIL ALL OUT, AND PUT A SIGN.. NO CLIMBING..CAUSE YOU COULD GET HURT!!!

    THE PRICES NEED TO COME DOWN TO FUNDAMENTALS, OR BAIL ALL OUT!!! YES, I MEAN ALL

    GIVE PP THAT DON’T NEED A BAILOUT – A BIG STIMULUS TOO, SINCE INFLATION WILL GET OUT OF CONTROL!! WHAT ABOUT A PRICE CONTROL IN PRICES SO THEY DON’T GET OUT OF CONTROL AGAIN??

    CAN WE IMPLEMENT ALL OF THAT?? IF NOT, DON’T DO IT, AS UNINTENDED CONSEQUENCES WILL TAKE PLACE!!

  65. Do you care about your kids?
    Do you care about your sister, brother?
    Do you care about your parents?

    Well if you do, you’ll need to stop the bailouts, as the inflation will be start to get out of control in about 2 years, when we might hit the bottom.

    Imagine taking 25$ to buy a galon of milk. Can you imagine 100$, what about $1000, or even $10000? (over the next 10 years)

    1/2 of the mortgages in US are backed up Fannie/Fredie.. garanteed by the taxpayer.. do you want to reduce balances on those too?

  66. Buying a house is a contract like any other: between a buyer and a seller. The bank (or mortgage broker) is just a facilitator. I don’t know of anyone who had a gun held to their head when they purchased their home.

    Why should the bank take the hit for a bad decision in a contract? The bank’s contract with the buyer is not the problem.

    If I buy a car and the value of the car drops below the balance on the loan, should the bank reduce my loan?

    There is a very slippery slope here: if deals cannot be bad deals, then where’s the risk? Risk is the basis of capitalism.

    No risk? The bank is a “partner” in the contract?

    Then maybe the bank should take the profit made by people who bought in 1991 and still own their homes?

    Maybe the bank should go back to the seller and take the profit that the sellers made as the values went up?

    Not so different than reducing principle.

    The SEC is trying to go back and get any money paid to Bernie Madoff investors over the past 6 years. So turning back the clock may not be that far from reality.

    Capitalism is based on a desire to better one’s self (greed). No one complains when a risk is taken and a profit is made. Most houses, I bet, were bought out of “greed”. That’s what our system is based on.

    If we take the risk out of the system so that no one can lose, the system loses. No one makes any profit (or loss) on any contract. Didn’t we used to call this communism?

  67. BITHEAD..

    You sound like you don’t know how poor pp live..

    You heard of emergency room, right? pp use it all the time, without insurance..

    You heard of section 8? Poor people get help.
    You heard of food cards, right?

    Well, if inflation gets out of control, guess what, a lot of pp won’t even be able to get food.

    FOOD IS ESENTIAL!
    JOBS ARE ESENTIAL!
    HEALTH IS ESENTAIL!

    Ownership is a luxury!! Get it through your head!
    It’s like your driver license, not eveyone has it, and it’s a priviledge, not a right!

    As you can tell, I’m pissed off this morning!

  68. Steve, good point!

    GREED, you would imagine with all the CNBC shows about GREED.. pp would learn something.. I guess the show must go on for at least few years!

    WAKE UP PEOPLE!

  69. BITHEAD.. one more thing about your FICO!

    After my forclosure, I’ve paid off 20K in debts, my credit jumped 100 points! yes – it can be done.

  70. ex_owner_now_renter ,

    I’m 100000% with you. I don’t know what these other people are smoking. It’s truly unbelievable that people think we should subsidize idiots’ loans. As I’ve said above, I think their statements are entirely self-serving. They’re pissed because they bought near the peak of the market and they don’t want to wait fifteen years before they can turn a profit. That people can be so stupid, selfish, and narcissistic, it makes me want to throw up.

  71. One more thing BITHEAD:

    – pp that want to walk, have 9 months of preping! save during those 9 months, worst case: make double deposit when renting, if choosing not to pay off rest of debt, to improve FICO

  72. ex owner

    no one really cares if you are pissed off this morning, so shut the F up !

  73. I am in favor of modifications to mortgages.

    But modifications between the borrower and the lender, in order to be a valid contract must have “consideration”.

    The bank should have no obligation to reduce principle.

    Consideration could be longer terms, lower rates, etc. But the buyer (bettor) should not be given his money back from the lender without proof of fraud committed by the lender.

    The only mod that I would favor is this:

    1. Federal gov. (Fannie, Freddie, Citi, BoA, etc) refinances the loan to a 28/36 (“the mortgage”). This can be done with a combo of lower rates, longer terms, etc.

    2. The balance of the loan becomes a lien on the property (that earns X% for 30 or 40 years)

    3. Homeowner only pays “the mortgage” 28/36.

    4. Homeowner’s risk is still there.

    5. When real estate comes back enough, homeowner can sell, pay off the 28/36 and balance on the lien. Lesson learned.

    The poor homeowner may be underwater for 10, 15 or whatever years. So what. They made a bet and lost. They got on the wrong side of “risk”. That’s life. There are consequences to our actions. If we make the wrong choice we pay.

  74. That’s right. They can live rent free, maybe for a year, then go rent for cheap. I have no sympathy for them, they have a pretty sweet deal considering they don’t have to pay back the money they borrowed.

    /ex owner, now renter as well

  75. Java,

    I’m convinced that 2009 it’s going to be worse than 2008, because of pp like you.

    I hope you don’t piss off other pp too.. u know a lot of 100K+ salaries pp (like me) ..could be leaving Cali.. and go somewhere else.

    My (ex) bank took more in interest in 2 years, than starting bid of my home at auction!! and you want to keep this PONZI scheme going!

    LET THE PRICES GO TO FUNDAMENTALS!!! IT’S THE ONLY WAY !!
    NO LOAN MODS.. AS IT (MAY) HOLD PRICES AT THE ARTIFICIAL BOTTOM.. AND INFLATION OUT OF CONTROL..

    AND IF IT FAILS?? WELL, NOT ONLY WE’RE SCREWED FOR 2 YEARS, BUT FOR 60 YEARS!!!

    WAKE UP PEOPLE!

  76. Could any of you who have used the words “subsidize” or “taxpayer” or “inflation” read through Mr. M’s post and show me where principal reductions are being subsidized by anyone, billed to the taxpayer or stoke inflation expectations?

    Before you answer, keep in mind that as far as the banks are concerned, there is no difference between a $100,000 loss on a foreclosure and a $100,000 loss on a principal reduction. On the balance sheet, a loss is a loss regardless of the how and why. And make no mistake, they are going to take that loss one way or the other.

    If you have a problem with our government bailing out the banks for making loans that resulted in losses, well I’m with you on that one. But preventing real loan modifications is no different than preventing foreclosures – it doesn’t work and will only delay price discovery and ensure the price of your home or the one you are waiting to buy will continue to decline for many, many years.

  77. If you put 20% down on a house and lost that money, not my problem. You thought you were going to turn a profit, and lost. If you put 0% down and the house has lost value, not my problem. You may not be able to sell without a loss for fifteen years, but so be it. If you don’t like it, mail back the keys and become a humble renter like the rest of us. No way in hell you should profit from your own stupid mistakes.

  78. “there is no difference between a $100,000 loss on a foreclosure and a $100,000 loss on a principal reduction”

    Yes there is. A $100k loss on a foreclosure is a house selling for cheap to somebody responsible that will continue to pay for it. A $100k loss on a principal reduction is a benefit for the IRRESPONSIBLE borrower. Pretty simple math here. Do I want the benefit to go to the idiot peak bubble buyer? Or do I want it to go to the teacher or firefighter that has been priced out of the market the past seven years? This is not a hard choice for anybody with half a shred of decency in their soul.

  79. 100K forclosure, would also help price discovery, which needs to hapen.

  80. We actually treat people who walk away from a mortgage pretty good.

    Their punishment is the little they put down (no one with a lot of skin in the game (a profit) walks away) is gone and a lower FICO for a few years. Over and done with.

    Try to walk away from child support or a judgment against you. Your wages are attached for life. You’re chased forever (so it seems) till you pay every last dime (plus interest and lawyer fees).

  81. Kevin,

    Good point about the foreclosed home possibly going to a teacher or firefighter, but you took the comment out of context. If you are going to quote someone else, you should use a bit of integrity yourself and not distort what was being said. The fact remains that the $100k loss is the same to the bank. Your point about who else it may affect remains valid though.

  82. ex_owner_now_renter

    I hear what you are saying, but I don’t agree. The examples you gave are either sponsored by taxpayers or end up costing EVERYONE more money. Either way, all of us will be paying for people to walk or stay in their home. So which way sucks less and is that what is good for you or the economy as a whole? You are going to get hit for it financially in any event through taxes, etc.

    My point is this…business has always been about the shareholder first, never the consumer. But our economy is based on the consumer STAYING ASLEEP at the wheel. Now the consumer is waking up or at least starting to save and build a strategy to deal with their current situation. SAVING is bad for the current economy structure but our government wants to keep it functioning like old times….with YOUR MONEY. And here you are screaming that the prices need to return to fundamentals, but those fundamentals were a lie to begin with. It is no different than valuation of assets in any company right now. Who can set the value when there is zero confidence and no one has a good way to evaluate them. You may think we have to at least try to determine the fundamentals again, and that is what I am saying about trying to help the folks that are failing right now. At least try…since there has been ZERO help for consumers to date!

    We need to stop trying to grasp the blade as it is falling by trying to cling onto the past way of doing things. I just don’t see it happening especially since all the trillions of dollars being sunk into almost every industry is to only build confidence again. The only confidence building I see in the near future is all the consumers will finally wake up (as you state) and seek revenge. Again, this will do nothing but impact each citizens wallet.

    Like it or not, consumers will dictate what happens, not the market and not the fundamentals. They will do so by inaction (allowing the government to do everything) or action when they are fed up with double talk.

  83. Loan Modification MUST NOT BE FREE LUNCH.

    It must come at the expense of complete destruction of the homeowner’s (more precisely, “SPECULATOR”) credit history. This is the “minimal acceptable Guaranteed return” to the prudent Tax Payer’s Trillion dollar bail-outs.

  84. Party boy, I wasn’t arguing about the difference to the banks in that regard. But allowing for price corrections and providing affordable housing to those that actually deserve it (rather than those that really don’t) is something that cannot be overstated in my opinion. As far as it all being equal for the banks, I can only guess that in terms of risk mitigation, it’s better to not take a loss that benefits a known problem borrower, somebody that (as results thus far have shown) is likely to stop paying again. In fact, it will create a cyclical routine of people continually stopping their payments to get reductions in principal. I can see why the banks would much rather ditch the people and take losses on the houses.

    bithead, I’d rather pay and let them walk than pay to let them stay. If they walk, they’ll go rent for cheap and can spend more on consumer goods. Meanwhile, the house sells for “cheap” to somebody that can – as well – spend more on consumer goods. I don’t think that letting them walk versus subsidizing their loans is a net negative on the economy. Even if it were, fine. Morally it’s preferable.

    I’ll ask again: anybody that wants principal reductions not underwater themselves? I suspect the proponents of this wretched idea are being very self-serving in their advocation.

  85. Why is it that some here believe those who receive modifications are the only homeowners getting a break?

    How many homeowners here deducted their mortgage interest on their taxes?

    How many deducted their property taxes?

    How many keep their Home Depot receipts to deduct those expenses as well?

    How many sold their home for a nice capital gain and paid absolutely nothing in taxes on that gain?

    How many have received a conforming mortgage, with below-market interest rates subsidized by the government?

    Add up the present value of all these breaks over the life of a 30-year note and you’ll find you shouldn’t throw bricks from glass houses.

  86. redeye,

    And your point is?

    There are plenty of “breaks” in home ownership. That’s the way the rules and laws were written.

    Someone buys a home and follows the rules: pays their mortgage and taxes – they get a “break”.

    This discussion has been about mortgage mods with principle reduction. That’s more than a “break”. That’s not the way the rules were written. Principle reduction is basically giving a gift to someone who made a bad deal. Why?

    Why should that happen when most people pay their mortgage – upside down or not – and pay their taxes? Then they take a deduction on their taxes. This is the way it was written.

    Principle reduction is like trying to rewrite the law of supply and demand. Like the law of gravity, any attempt to rewrite it will be doomed to failure.

  87. “Principle reduction is basically giving a gift to someone who made a bad deal”

    A really really really big gift, at that. Let’s say I know somebody that makes $100k. Three years ago they bought a house for $500k, now worth $250k. Why in the world should somebody with that kind of income receive $100k, $250k, or anywhere in between? That is fucking outrageous. The person that even wants such a subsidy or feels entitled to it has absolutely zero integrity.

  88. Kevin,

    Your point about the banks not wanting to modify a loan for a known risk (current non-paying homeowner) is well taken. However, in terms of risk mitigation it makes some sense to modify loan terms instead of pursuing foreclosure. If a home is 40% underwater (lets assume $500k mortgage on home now worth $300k) and the bank forecloses, they will lose ~$225k after factoring in expenses. IMO, this is the best they can hope to do as some people who gets foreclosed cause damage to the home before vacating out of spite and bitterness. If the bank reduces principle down to $300k, they will likely get at least a few more payments from the current non-payer which is better than nothing. I believe I read that somewhere in the neighborhood of 50% of modified mortgages are defaulting again. What this means to me is that 50% of modified mortgages are now performing. I may be jumping to conclusions here, but it seems to me that if no modifications were performed, the bank would lose on 100% of these deals as opposed to losing on 50% of them. This seems to be a pretty strong case for modifying mortgages, at least from the banks perspective.

    If you were the bank and had 10 home loans which were in default, would you rather foreclose on all 10 and take the maximum loss or modfiy all 10, keep 5 performing and take only 5 to foreclosure? This is a business for the banks and while you make sound moral points about who is benefiting, it is pretty easy to see why the banks would not care about that at all. Not a perfect situation, but understandable from all sides and opinions.

  89. Why not simply let home prices drop to a point where buyers step up to the plate and buy? You know, let the ‘free markets’ do what they do. And those that lose, will live to fight another day with a well learned experience that will not be forgotten.

    At the end of the day, all’s cleaned up. What we have now, is a pile of folks that haven’t paid their mortgage in over a year, and a pile of banks hidng this as they are in no hurry to face the music, and each playing it for everything they can get.

  90. Couldn’t have said it better myself, Partyboy.

    One point: I’d be willing to wager that very, very few of the “modifications” in that 50% re-default figure contained principal reductions. That’s Mr. M’s contention, repayment plans, new teaser rates and 40-year terms are doomed to fail for the same reason the original note failed – poor underwriting.

    Modifications in their current form (w/o principal reduction) are nothing more than accounting vehicles to push current losses into future quarters making banks appear solvent and assuring investors that the worst is behind us

  91. “I may be jumping to conclusions here, but it seems to me that if no modifications were performed, the bank would lose on 100% of these deals as opposed to losing on 50% of them. This seems to be a pretty strong case for modifying mortgages, at least from the banks perspective.”

    Quite the opposite as I see it. People have incentives to stop paying. If you stop paying, the banks might work out a deal for you. Keep paying, they ignore you. Take away this incentive and perhaps more will pay. And I don’t see how a $200k principal forgiveness for a few more monthly payments is the smart way to go. Get the deadbeats out of the house and sell it to someone that will pay responsibly.

    Do you folks stand to gain from this “plan”? I’m betting that you’re all underwater and want massive principal reductions. Am I right or what?

  92. Kevin,
    IT will become your problem soon enough , as it will be ALL our problem..

    and please dont patronize us here, using the poor “underpaid” teacher and “life saving” fire fighters who are the only people who could buy a house in the past 7 years…..it sounds disgusting reading it as seeing it on TV with “joe the plumber”

  93. PS i want PRICIPAL REDUCTIONS and i am NOT underwater

  94. Some of these comments crack me up and they are really only looking at the micro issue of the irresponsible lender and assuming that it applies to everyone seeking a loan mod.

    What is about to happen (and WILL happen in my case) is the prime borrowers are going to default. I could afford my mortgage when I got it. I can still afford it now. But now that my home is 45% underwater I definitely want out.

    This has nothing to do with “risk”. That is laughable. The home is not built on an Indian burial ground. There is not a crack den next door. There are no fundamental reasons why a home would drop 45% in one year unless “someone” caused prices to artificially increase to begin with. And that is exactly what happened. How was I to know that this was going on? I am not a real estate professional and don’t care to be one. I bought a house that I liked and was in line with housing trends in the area. I had it appraised. I was guilty of trusting the system. I thought it was regulated?

    Like I said, I could easily continue to live where I am now but am I to assume that I could never sell my home now for the next 10 years without taking a huge loss? If my prior housing history (7 moves in 12 years – 4 were international) is any indication of my future housing needs I would say that its likely that I will need to move within the next 5 years.

    Now “risk” I can accept when housing drops like 5-10%. But that is not what we are talking about. I agree that many bad loans is what started this off but now its dragged down the entire market. Being in CA I know I can walk away and there is no recourse. We are planning to do this if we don’t get a mod. So who foots the bill for this? You do. We do. We all do.

    Like it or not the banks are getting bailed out. So our tax dollars are already helping out the banks who perpetuated this scheme. So arguing about not doing mods is just wasting your breath. If the money doesn’t go the mod then it goes to the bank’s balance sheet via Paulson.

    Now, I agree that some people definitely do not deserve any help and really just tried to fleece the system. But how do we sift through all of these different scenarios? Just redo all 2004-2007 loans now and if the home owner QUALIFIES (incl. 20% down) then they should get the loan modified. IF not, then they are foreclosed because they never should have had the home to begin with.

    Half my street is in the same boat as me. We’re all just waiting to see what will happen with Obama taking office. If nothing happens soon, we’re all walking.

  95. Hello Mr M. I’m a home owner and I attempted a loan mod with Aurora Loan Services and was rejected and now I’m currently trying another one with a different Aurora “program” as they call it. I’m an Alt-A borrower with a high fixed loan(8.25%). When I got the loan the numbers were cuting it very close but the bank said if I made a year of payments on time; I’d be able to refinance. So I worked 55-60 hours a week(construction is my trade); but when I attempted to refinance I was told I needed 25% down; which was around $60,000 for the $240,000 I owed. I didn’t have anything close to $60,000 so they said if I miss a payment, then I could apply for a loan mod, but that I would first have to make 3 “good faith” payments at a $100 more than my regular payment; on a repayment. I was told I’d “most likely” qualify for a 2% interest rate reduction, which would save me $375/month. This would allow me to pay my bills and save a bit each month instead of having nothing at all left after paying my mortgage and other bills. So I missed a payment and went into default which ruined my credit and then made the 3 “good faith” payments. And then I reapplied for loan mod but was rejected. I was told the investor(Fannie Mae) said I did not meet their criteria. And they refused to say anything more in detail. While waiting for approval I was told to not make payments so I fell 3 months behind. After rejection; they said to apply for Fannie Mae’s Streamline Program and to continue to not make payments. Now I’ve waited another 6 weeks for an answer and I’m 5 months behind. From reading your boards and many others I expct another rejection and a foreclosure notice as soon as Fannie’s foreclosure moratorium ends. My attorney said to continue to pay Aurora nothing(Aurora said not to pay anyway) and to save as much as possible and to file bankruptcy when I get the foreclosure notice. If I was modified 9 months ago; I would be current with a 6 1/4% fixed loan and I would have kept my house. I was rejected and lied to by Aurora throughout the whole process and now I’m in a mad scramble to save every dime I can and rent for half what my mortgage was. I realize now it’s best to walk away and rent. I hope some people will realize that millions of people got loans like me, that were simply a bit too much, but if modified down to 6%; millions of homes could have been saved and home values would not have tanked and this mortgage crisis would have been only half as bad as it is. Did people like me make a mistake and get loans that were just out of their range? Yes. Is it smart for loan servicers liek Aurora and investors like annie and Freddie to have only done actual rate reductions for about 20% of those who applied? No.

  96. “I’ll ask again: anybody that wants principal reductions not underwater themselves? I suspect the proponents of this wretched idea are being very self-serving in their advocation.”

    Kevin, you can turn the questin on it’s head as well. All the ranters (like Kevin)want the market to crash so they can get a house on the cheap (and take advantage of someone elses ill fortune.)

  97. notseen,

    That’s your choice to make, and I cannot say I blame you for wanting to walk away from your upside down house. But I find it interesting that you, your neighbors, etc are holding out in case you’ll get some kind of bail out. That sense of entitlement is so narcissistic I really do hope you have a full recourse loan and they come after you for the difference.

    Javagold,

    I wasn’t patronizing anybody, you antagonizing idiot. Fact is that in my area, social servants have been priced out of the market. Falling housing prices are a good thing. Make homes affordable again. Does that mean your house’s value will continue falling? Yeah, but so what. I keep hearing that this will all be my problem if we don’t bail idiots out of their loans, but the threat stops right there and nobody can say “why”.

  98. Kevin,
    the master of “so what” and “not my problem”, is the one calling other idiots ….perhaps he needs to go back to school and have a teacher who cant afford a home, teach him how to express his thoughts better

  99. “All the ranters (like Kevin)want the market to crash so they can get a house on the cheap (and take advantage of someone elses ill fortune.)”

    On the cheap? You must be unaware of the housing bubble and what “cheap” actually means. I just will not buy a house at a bubbled value like you tards did. I’m not trying to score any profits or scam anyone, I just don’t want to screw myself. Because even if I make a mistake and buy too early, I would never lower myself to calling for a principal reduction. I’m a grown boy, I make my own deals, and like all grown ups should do, pay my debts. Deadbeats looking for principal reductions should be put out of their misery.

  100. Kevin,
    So your argument is really, “where’s mine”? Your hypocrisy is astonishing.

  101. “I’m a grown boy”

    Grown boys don’t name call.

  102. i am done with Kevin, everyone else is a tard, a deadbeat and a liar (on their loans) and deserve to lose everything because godforbid they bought a home to live in…..while Kevin was the genius who could forsee 7 years into the future and decided to rent, he is also the only one with any morals and finally he is the only looking out for the teachers, firefighters and i would assume nuns

  103. Not at all, Jacktar. I don’t want a single thing, nor do I think anybody else should be given anything either. That’s my entire point. Everybody makes their own choices and makes their own beds. You must be a subscriber to the Juche philosophy.

    I don’t know where you got the sense that I wanted something. Reading comprehension problems, work on them.

  104. “Grown boys don’t name call.”

    Sure they do. They don’t ask for principal reductions on their houses. They don’t borrow what they cannot (or will not) pay back. But big boys can always call names.

  105. Kevin,

    I don’t think that the incentive to stop paying on a house is the possibility that the bank will modify you. As I see it, the incentive is that renting is much cheaper than owning, the bank cannot come after you for anything other than the house, you can stockpile money for 6-12 months while not paying your mortgage, and you can be back in the market in a few years while home prices will still be much lower than what is owed on the currently occupied home. This does not apply to everyone, but I would guess that it applies to most people who are walking away today. Trying to get the bank to modify the loan may be a contributing factor to non-payment but I would call it a minor contributor at best.

    I don’t understand how you can fail to see that a principle reduction (even if made just to get a few more payments from the owners) doesn’t make sense. Reducing the principle does not forfeit the right of the bank to foreclose. As you so eloquently put it, the banks can still “get the deadbeats out of the house and sell it to someone that will pay responsibly” if the owner re-defaults. Given the choice of foreclosing with no payments and foreclosing after collecting a few more mortgage payments, I would choose to foreclose with a few mortgage payments every time. Every little bit helps in this tough economy.

    And for the record, I don’t really care if principle reductions are given or not. I think that it makes the most sense from the bank’s point of view. It is not the fairest thing for the general public but it makes the most fiscal sense to me.

    I am ~$250k underwater and can afford my payments. My wife and I make good money but are certainly considering walking away to best achieve long-term wealth. We are aware of our options and know the pros and cons of all of them. Whether the banks would modify us or not is not a part of the equation for us. If we decide to walk away and they make us an offer we can’t refuse, we wouldn’t complain. But we are not tempted to walk based on that possibility. We look at our situation and evaluate our decisions based on where we will be in five years if we continue to pay on our home or if we walk and rent for a few years. I think that when people look at their situation like that, decisions become a battle of the heart vs. the brain….an obvious logical choice clouded by emotion.

  106. Kevin,
    My apologies if I read too much into your posts. In the final analysis, Banks will MOD loans if they feel it makes sense to do so. I’m curious why you have so much heartburn with that. After all, you are not a party to the contract.

  107. All this talk about housing being an “investment” is nauseating. It’s not an investment. It’s a LIABILITY!!! It’s only an investment for the bank who owns your loan and receives re-payment + INTEREST. When you buy a house, you are buying a liability, and in 99.99% of the cases, you are cash-flow NEGATIVE!!! An investment PAYS you to take the risk.

    If you buy a house expecting the value to go up, then you are gambling, pure and simple. If you gambled in the last 3 years, you lost.

    Mr. M, with all due respect, all this talk about cram-downs, re-mods, etc., has simply convinced me that housing will be a dead LIABILITY-class for years to come. Studies show that 50% of all re-mods go back into foreclosure anyway.

    Why is this? Because people who got in over their head without factoring in loss of health, job, or a divorce, will continue to stay in over their head.

    I have been one of the patient savers for the last few years, and keep pushing out our time to buy a house. Until income/property values come back down to earth, and people stop talking about housing as an “asset”-class and expecting the value of their liability to increase, I will continue to work hard to improve our families balance sheet for the day when we can buy house, for at that time housing will have hit bottom.

    Nothing I’ve heard from the above comments, with all due respect, makes me believe that that day is not 10-15 years away.

  108. For the record, I have not owned a home since October 2004 (yes, a bit early on my bubble call but after what the dot-com bubble did to my IRA, better early than never).

    Kevin, the banks are foreclosing rather than doing real modifications because they know the government, especially the party in power, hates foreclosures and loves government solutions. The more homes they foreclose on, the closer they get to Barney Frank coming up with an idea to buy every mortgage in the country and let them off the hook.

    Wells Fargo giving your neighbor a loan mod costs you nothing. Barney Frank giving your neighbor a mod will cost you a great deal. And don’t say you are opposed to both. There’s no free lunch. Sombody’s gotta take the loss. The only question is whether the loss will be taken by the banks or us.

  109. Not Modified,

    Aurora is one of the worst loan servicing companies out there, don’t hold your breath while waiting on them. If you want reassurance on why they are so bad, just read about how their loan division directly contributed to the demise of Lehman Brothers.

  110. Redeye,
    Haven’t the taxpayers bailed out the banks already or are you saying this is just round 1 ?

  111. “[Modifications] make the home owner a trapped, underwater, over-leveraged renter for years, if not life.”

    ….Those trapped people will get little sympathy from the general public, since no one put a gun to their head and told them to buy at the peak. Call me bitter, but I’ll take the zombie economy if it means people will maybe learn economics the hard way. Mr. Mortgage has altruistic reasons for his position which are very respectable, and his intentions are for what is best for the economy in the “big picture”, but as for me, I am too worried about the future faith in US Contract Law should cram-downs become the norm and make a mockery of it.

  112. HousingRealist,
    I will put a competent formula together for you to rip apart, but remember mortgages are considered “soft money” and stabilization of the housing market creates value for worthless securities currently in the portfolios of banks. One plan I liked, you should check out-unless you already know-and maybe Mr. Mortgage can help since I’m drawing a blank, the writer for Barrons, with the 4.5%-and 1.5 Trillion in mods. I believe the practice of bailing out financial institutions with Billions of American Taxpayer dollars and allowing these groups hoard the money add it to their balance sheets and payoff elephant investors or pay for a retreat and pay executives millions in the form of a bonus is the answer. Paulson and our government officials have really let the people down and for the most part other than the amount of the checks Paulson & Company wrote-they can not account for what 240 Billion dollars of the TARP funds. The Hope for Homeowners program is a joke and foreclosures & defaults have numbers of 10.3 million between now and early 2010, hows that for the housing market. Divide 700 billion by every American Taxpayer and if the government issued that amount to each one of us-the economy would not have crashed and the housing market melt-down would have not (for the first time in U.S. history) caused the recession. Off setting investor losses with the implementation of True Loan Modification and a plan to gobble up the inventory of homes (sitting with no buyers) is in the scope of the U.S. Treasury. Complement that by asset backed Mod securities and watch the market come back from the dead. Retail stores want our money in bail outs, it seems that the government officials are taking our money and spreading it around to everybody except those who need it-those who’s home has been taken by the bank. The reality is 350 billion and another 350 billion on deck dollars we and our kids & their kids will never see a return on and end up paying for years to come in the form of higher taxes-inflation, interest hikes, etc… Citigroup, AIG and the rest who fleeced, manipulated and gambled for 5 to 6 years making billions in profits over that period only had to cry really loudly and bang their collective bottle while screaming we are just going to file BK and their reward Billions and Paulson should over take Bush as the Village Idiot on Saturday Night Live sketches. Letting the banks fall only means another stable entity gobbles up the remains and re-structures the asset, how is 306 billion in guarantees of crap Citigroup securities doing for us, or the 27 billion in preferred stock @ 8% or whatever we got-Citigroup took 17.6 billion net and paid off senior debt instead of opening up lending portals to pump money back into the system. Sad to think the U.S. economy is as fragile as paper-and can only survive if people spend borrowed money as if it was there own-while corporate American ships jobs overseas to the applause of the officials whom they fund like clock work. Heck, the banks have no intention of lending money and while our government gobbles up dead assets and monopolizes the mortgage lending industry (whats left)-who is asking Paulson or anybody-where is the money coming from and what’s the liability of this strategic plan of incompetent implementation of Wall Street puppet masters-answer Housingrealist Nobody and the public at large still believe what they hear & see on TV is reality.

  113. Yeah, is NOT the answer.

  114. Multiple responses:

    “deserve to lose everything because godforbid they bought a home to live in…..while Kevin was the genius who could forsee 7 years into the future and decided to rent”

    They don’t lose anything, just the house they cannot afford. Future’s always brighter, and they’re getting off easy.

    I could have stayed in my place and been just fine. I didn’t say I was a genius, but this crash was very obvious and foreseeable. Didn’t take a genius to realize that after eight years of prices doubling or tripling with little household GDP growth, they’re going to come crashing down. It wasn’t until I got out of it that I really saw the illusion that is the American Dream of home ownership. I see housing prices heading towards the inevitable, and no principal reductions or remods are going to change that. I just see it as giving massive amounts of cash to people that gambled poorly. If my intonations or fiery language indicate anything, it’s my absolute outrage to such a concept.

    Somebody that bought in at the peak, and thought renters would be priced out forever, and bragged about their $800k house on a $100k salary really should not get one red cent from anyone.

    If my opinion on this matter is in any way self-serving (I don’t think it is), then so is everybody else’s. I don’t want principal reductions, others do. If I were convinced that it would do anything positive other than just give selective people hundreds of thousands of $$$, I could perhaps put the moral outrage to the side. But I see no benefit. It’s like an argument between a guy that racked up $50k on his credit card vs the guy that owes nothing. Sure, bail out the guy and he’ll keep spending, but is that what we want? Of course it offends the guy who owes nothing if the other loser gets bailed out. That’s not how life works, except if you’re all about the Juche.

    “Banks will MOD loans if they feel it makes sense to do so. I’m curious why you have so much heartburn with that. After all, you are not a party to the contract.”

    In that case, I don’t really care. So long as it isn’t government subsidized. But – I believe – that the TARP money would cover their losses, right? Anyway, I think it would actually be better for the homeowner to learn their lesson and either slave off the mortgage and learn to live a humble life, or just walk away and take the indignity that comes with it.

    “Whether the banks would modify us or not is not a part of the equation for us. If we decide to walk away and they make us an offer we can’t refuse, we wouldn’t complain. But we are not tempted to walk based on that possibility.”

    Thanks for answering the question. I don’t blame you for wanting to walk away. Don’t blame anybody really. I don’t know what people were thinking about buying in a market that just doubled or tripled in a few years, but that’s past us. Now it’s personal finance versus personal integrity. In the end, we know which will always win.

  115. Jorge put it perfectly. I’d take a world of Mad Max before a world where we bail people out of their loans. Good intentions perhaps, but it is so repulsive to those of us that believe in personal responsibility, no exceptions.

  116. “I see housing prices heading towards the inevitable”

    I’m curious, what do you see as “the invitable”?

  117. when everyone is doing the same thing , the “indignity” of walking away is long long gone, so much so, that the indignity will be soon that YOU ARE STUPID AND A FOOL, UNLESS YOU JUST WALK AWAY

    and the person who bought a home for $800K on a $100K income, definately stretched things , but there is NO way his purchase price should have dropped 40-60% in a year on a real estate PURCHASE (not investment)……this is not penny stocks we are talking about here…..ITS REAL ESTATE and no matter how much of a bubble you “knew we were in” 60% drop in a year constitutes FRAUD and a PONZI scheme and that the part the “RENTERS” seem to conviently NOT CARE ABOUT

  118. JackTar,

    Just round 1. 60% of banking revenue in the past five years came from fees and commissions associated with the securitization of loans. That business model is dead and it isn’t coming back. They’re going to lose $2 trillion before all this is over and they didn’t have it to lose. Think of walking into a casino with a net worth of $50,000 and losing $1 million on credit. That’s what they did.

    I say let them fail. New banks with new money and sound management will take their place, but that is a minority opinion. If I had to guess, I think that by year’s end, all the big banks will join the ranks of Fannie, Freddie and AIG, 89.99% owned by the government with that $2 trillion covered by you and me.

  119. Inevitable… below the inflation-adjusted norms of the past sixty years. Down to fundamentally supported levels, and maybe below depending on future interest rates and lending requirements (imagine if they mandated 20% down again).

    http://www.housingbubblebust.com/OFHEO/Misc/BubbleGraphs.html

    [IMG]http://i39.tinypic.com/1yx021.gif[/IMG]

    While I agree that principal reductions will keep people from walking away, I don’t think in the long run it will help anybody, and just throws good money after bad.

  120. “The inevitable” pricing that is being discussed is in the history books…(median income x 3 = home price) In LA County the median (household!) income is like $53k…so do the math. Only highly desirable coastal areas will be able to escape the math. Undesirable areas like Compton and Wilmington are almost back to those historical levels….Santa Monica is still in the stratosphere, for now.

  121. FRAUD and GREED .. ouch! that’s what hapen folks!

    Like everyone that invested with Madoff should get all their money back, right?

    Javagold, since you don’t need help, why r u asking for your reduction, a bit greedy my friend?

  122. “ITS REAL ESTATE and no matter how much of a bubble you “knew we were in” 60% drop in a year constitutes FRAUD and a PONZI scheme and that the part the “RENTERS” seem to conviently NOT CARE ABOUT”

    What I meant about not caring is don’t think you’ll start a sob fest about being conned into buying a house. Sure, those industry jerks had you sold on something that was a complete scam, but they actually probably believed in it too. Nobody forced anyone to buy. Some people saw this coming, others didn’t.

    For the past five years I’ve been telling people/friends not to buy, that it was a mistake. They did it anyway because their “knowledgeable realtor” told them “now’s the time to buy”, and obviously they would be the ones to know better. So no, I don’t care for or feel sorry for them now that their gamble that was made with bank’s money hasn’t become the gold mine they thought it would.

    So they can “WHHAAAAAHHH FRAUD” all they want, you didn’t hear them complaining during the market boom. They gambled, they lost, and they should pay for it.

  123. wrong but right idea.

    Historically house prices run 1 to 4 x household incomes.

    Undesirable areas = 1 to 2 x maximum
    Desirable coastal regions – 2 x 5 x maximum

    the higher end points are during times of low rates, good sentiment and stable economic conditions.

  124. ““The inevitable” pricing that is being discussed is in the history books…(median income x 3 = home price) In LA County the median (household!) income is like $53k…so do the math.”

    I’m not a firm believer of that 3x rule, mostly because it’s based on the assumption that 3x income (which is the general rule for a buyer) can use generalized municipality GDP as the multiple. But 1/3 people are renters, so that kinda screws it up. And a lot of people own outright, or put 50% down. It gets murky. And as you noted, it varies a lot by region. Historical trends are what I go by, noting any exceptional changes in GDP and construction.

  125. I’m going to the casino, and If I win.. I’ll run.. but if I loose, I want the casino to give me back my money..if not I’ll walk..

    Don’t you think if principal reduction would work, it would already be hapening? Hello earth to Java!

  126. Thanks MM. Point taken.

  127. Java.. there is more chance to get pot legalized than home loan pricipal reduction.. that way you don’t have to hide!

  128. I’m wholly opposed to modifications, but I’m still pessimistic enough to think that Obama will indeed find a way to give chumps their easy-money, as secretly as possible of course, but thereby turning the rest of us into the real chumps, for financing the sneaky maneuver.

  129. BK (a big maybe) – but will not help, only slow down the process.

  130. ex owner, i am asking for REDUCTIONS FOR EVERYONE because
    A. i dont just worry about myself when analyzing a situation
    B. it seems the most logical answer to the problems
    C. why should banks be bailout but not the homeowners who had very little fault in what i see as nothing but a ponzi scheme fraud

  131. at 421 pm on Mr Mortgage MB, that was the best thing Kevin said all day

  132. “i dont just worry about myself when analyzing a situation… it seems the most logical answer to the problems… why should banks be bailout but not the homeowners who had very little fault in what i see as nothing but a ponzi scheme fraud”

    That is some really thoughtful reasoning there. You clearly have no grasp of the market, individual responsibility, and moral hazards.

  133. A true story:

    In 1985, I bought 2 investment condos for $172,000 – because “there’s no way you can lose”.

    For 3 years I was in negative cash flow but values were rising. Units were selling for $120,000 each.

    Then came 1988, prices started to fall. (Luckily my ARM adjusted down and I was close to break even.)

    By 1991, no one wanted to own real estate. 200 S&Ls bit the dust. People walked away in droves. The local paper had 16 pages of small-ad sized foreclosure auction notices each week (100s/page).

    Units in my building were going for less than $30K.

    I could have walked or stayed and pay. I stayed. I was way under water. There was never a suggestion of any sort of loan mods. People had only two choices: pay or lose the real estate.

    I know many who were buying in 1991. They sold in the late 90s. They are very wealthy.

    I stayed and paid. Eventually the 20 year ARMs were paid off.

    Last week the city reassessed my units down to what they were worth a couple of years ago: $489,600. That’s a $317,600 profit.

    It took time. Real estate prices going up take a long time. Real estate is not for anyone who needs instant gratification and pleasure.

    Today feels like 1991 all over again. It took quite a while for those that bought in 1988 to make a profit, but eventually they were rewarded greatly.

  134. i have nothing to hide ex owner, nothing at all, and i want to smoke some pot i will do that as well….becasue believe it or not i am a BIG believer in freedom and people being responsible for their own actions HOWEVER this real estate FRAUD is not a matter of bad luck, losing at casino or whatever else dumb analogy some of you come up with its about finding a SOLUTION and also not letting the entire market collapse because that is what will happen just like a house of cards and believe me the genius renters here will still be afraid to buy house no matter how low the prices drop, always waiting for the price to drop one more day

  135. steve, nice story EXCEPT you seems to miss the most imporatamt issure THE PRICE POINT….you bought 2 condos for $85000, even under water and taking into account the value of money in 1988 you still were able to amange your investment/cashflow
    fast forward to 2004-2008 and people PRICE point starts at $417000 and goes UP from there, even if they some how can manage it, they have NO money to spend else where and eventually they will be underwater close to 50%, which i doubt you ever came close to, and walking away will be the SMART option when of course it wasnt the SMART option in your scenario (as proved out by your profit)

  136. Steve,

    Good story. Thank you. It’s a shame that in today’s day and age people like Javagold think that if you lose in a gamble, it’s fraud, and that somebody should come save you. They wanted to get rich off of real estate, but the market flipped them instead.

    Be responsible, pay for that house you wanted so dearly and were given money to buy. If that is not acceptable, or even the gift of deferred reductions (I cannot believe the whining from these selfish homeowners that wouldn’t profit from such a generous mod), then walk away. Nobody is entitled to anything.

  137. Javagold .. you leaving many other pp out, how would you feel:
    – you get 200K write off, since you have a mortgage k?

    Everyone else that:
    – lost their home
    – paid cash
    – bought long time ago
    We all get 200K cash, and will start buying homes.

  138. Javagold is like the poster boy of people that had no idea what they were doing, bought at the market’s peak, and are kicking and screaming since their stupid house isn’t making them rich. It’s hard not to have utter contempt for such narcissism and greed.

  139. I forgot to include the renters that never bought (sorry)
    You get to buy (200K for your down payment) or buy what ever else you want.

    FREE MONEY TO EVERYONE!

  140. Javagold,

    All things are relative. I was making less than $12,000 back then. Buying, as it turned out, didn’t look very prudent. There were times I wasn’t sure I would make it. I got a second job. I kept the old car. I scrimped and sacrificed because I made a deal and was brought up to believe that a deal is a deal.

    People’s price point at $417K? There has always been property for less. Some people just wanted and wanted and wanted and they wanted it immediately. They never heard of the Rolling Stones lyric: “you can’t always get what you want”

  141. Clearly, there is no consensus on how we should go forward on a plan, I would really like to hear from those as Mr. M has mentioned, that may be going through a modification or those that are working on behalf of homeowners that we might determine what is working and what isn’t.

  142. Dee,
    over 150 responses and hardly any answer Mr. mortgages original question thus i would say NO mods that are presently out there are working for the homeowner, just another fraud against people who do not understand what they are signing and just worried about the PAYMENT price (and nothing else) and the banks are playing right into that lack of knowledge and fear

    but the moral police like Kevin, Steve and ExOwner will say tough luck to them

  143. MONTHLY PAYMENT

  144. If the problem was just those who bought at or near the peak, there wouldn’t be much of a problem. The real problem comes from everyone else who pulled a cash-out refinancing for all of their equity and blew it on everything from daily Starbucks and Coach handbags to Cadillac Escalades and vacations to Belize. 53% of subprime loans were refinances, not purchases. I would guess that homeowners in other loan types acted no differently.

  145. We have two sides vociferously defending their positions. One side saying “no help” the other side advocating either a principal reduction or other assistance for home retention. Is there any compromise to these polar positions?

  146. I too had hoped a broker or two would have chimed in, especially with volume and pull-throughs. I would find that interesting.

    As far as homeowners are concerned, from what I’ve seen on other forums, those who get a mod are very happy. They wanted a lower monthly payment and they got it. They don’t seem to be concerned or perhaps they don’t understand that a new teaser rate, a 40-year term and a silent second with full recourse will keep them in debt for the rest of their lives. They just compounded the worst financial mistake of their lives with the second worst financial mistake of their lives. Next stop, bankruptcy court.

  147. redeye,

    A friend of mine used her home as an ATM machine. As long as they would let her, she refied with cash out. She turned a small mortgage into a substantial one. All based on 80% of what the appraiser said her house was worth. One year she refied at least 6 times. Then in late 2006 they said enough.

    She has a big nut to pay every month. Can’t walk because she has assets. Her lifestyle changed quickly – fewer shopping trips – fewer vacations, etc.

    I have a question: Can a person with assets walk away and give up the home and keep the assets? Or is it an automatic that the bank comes back for the difference after the auction?

    Can one walk away and keep the other assets (stocks, CDs, bonds, boat, second home, etc.) and not file bankruptcy?

  148. Dee,

    I recently received an unsolicited modification from my 1st mortgage holder. Current terms on the first are 3.5% for year 1, 4.5% for year 2, 5.5% for years 3-5, and then variable rate for the next 25 years. Mod offer was 4% fixed for 40 years. No verbage in the contract stating the mod would change the loan to recourse.

    I have a neighbor who is using Green Credit Solutions and he recently received two mod offers. Their loan is 360k. The first offer is basically the same as the offer I received, 4% fixed for 40 years. The second offer was for a forebearance of 160k which would be due at the 30 year point and a 4% fixed for 30 years on the balance. The second offer seems like the one they will accept because it puts their payments under $1000 a month and gives them the flexibility to rent if they have to move. They say they will just deal with the $160k balloon payment at the end if that day ever comes. He also said that there is no indication in the offer that the loan would become a recourse loan. We live in CA so I am not sure if the recourse/non-recourse stuff applies to where you live.

    The first offer doesn’t seem like it makes sense because the second is much better but the first offer may have been straight from the lender and the second may have been negotiated through GCS. I am not sure of the details and I can’t verify this mod except to say that my neighbor has always been honest with me and I believe what he is saying.

    Hope this helps.

  149. @notseen

    Right on. I think your summary is exactly what I was trying to sputter out.

  150. Steve,

    I believe that in CA, the money used to buy the home initially is non-recourse. This means that if the loan is defaulted on the bank cannot come after the owner for anything other than the home. However, if the mortgage is refinanced or if a HELOC is taken out on the home, that money is a recourse loan. This means that the bank can continue to pursue the owner for repayment of money not recouped by the bank at auction. In your friend’s case, I believe they would be on the hook for the difference if she walked away. Whether or not the bank would come after that money is tough to say. I also believe there is no statute of limitation for the collection of the debt, meaning the bank could potentially hound her for life or until the money is paid back in full.

    A second opinion on this to validate or correct what I am saying would be appreciated.

  151. AFAIK, California is non-recourse for purchase money only. If that is actually true, in theory or in practice, then refis and mods are recourse. Still it’s quite expensive for the bank to go after people when most who do go into foreclosure are insolvent anyway. You can’t milk a bull. That’s why banks generally sell delinquent debt to collection agencies for pennies on the dollar.

    But I think the biggest problem with gaming the system – such as walking away from a $500,000 loss with $1 million in assets – is that the IRS will treat that half-million as income because the walker is not insolvent.

  152. redeye,

    I’m not sure there would be an issue with IRS: Someone buys a house – puts in down payment and some principle payment then walks away. They get nothing back. Nothing to report to the IRS. I’m not even sure they can take a loss on their down payment or principle paid.

  153. 982 form will be available at IRS to be filled out based on 1099c.

    No loss can be taken on the downpayment, or principle paid (that I know) 982 form I think we’ll be something like:
    amount of loan
    amount of loss
    amount forgiven

  154. And what happens to recourse post BK?

  155. Steve,

    I’m not a CPA, but as I understand it, the difference between the REO sale and the outstanding mortgage balance is classified as debt forgiven. Debt forgiven was taxable as income up until 2001 or 2002 when the solvency of the debtor was taken into account. If the debtors liabilities exceed their assets at the time of the forgiveness, there would be no tax due. If however, the debtor was solvent, the forgiveness would be treated as income.

    Now I have not heard of anyone who has been foreclosed on getting a 1099. And if you don’t get the 1099, chances are the IRS doesn’t either. But that in no way means the tax isn’t due and filling a return without the 982 ex owner mentioned is, well, fraud.

  156. If someone makes more $ than the medium income, they can’t do ch 7, but only ch 13.

    I believe the loss on recourse is treated as income for the year.

  157. On a short sell, or forclosure, the amount lost (condidering is purchase $) is forgiven. If it was recourse loan, from what I understand, you would want to make sure you get in writing that the amount is forgiven when doing the short sell, otherwise could be considered income for the year. I’m not a CPA either, but that’s what I know. ANY CPA reading this? please correct if I’m wrong.

  158. Yawn.

    Since nobody here seems to be posting their fabulous tales of receiving mana from heaven (principal reduction) I will, once again, point out the 800 lb gorilla in the room:

    31% of the nation rents, 26% own their houses outright and a substantial percentage have LTVs less than 50% and thus are in no danger of being underwater.

    The vast majority of the nation is, and will remain, vehemently opposed to principal reductions.

    Politicians realize this. Here is a quote from Barney Frank, who is chairman of the House Financial Services Committee (and will be very influential in the new administration):

    <>
    Frank acknowledged, however, that concessions had to be made to make the program palatable to the American public. This is why borrowers who take part in it must share any gains from appreciation in home values with the government.

    “You’re not going to get a program approved that helps people refinance loans on their homes and then allows them to turn around the following year and make a profit on that home,” Frank said.
    <>

  159. Toast,

    I agree that there is (or should be) very little political support for the 80% of Americans who lived within their means to bail out the 20% who did not. But we’re not talking about federally-financed principal reductions here, we’re talking about Mr. M’s private sector proposal.

  160. The Coast is Toast,

    Without principle reductions what seems to be left is:

    1. longer terms, lower rates if the servicer can get the tranche to agree

    2. walking away

    3. making the payments

    I would suspect that what the AIG and banks and car guys got will be the only viable option:

    We (the gov.) buy your mortgage (because that way they can do what they want) but we want “preferred stock” in your “company” (ie home). No profit till you buy back the “preferred stock”

    The government is the only one (other than maybe Warren B.) with enough $$$ and patience to pull this off.

    “What’s good for GM is good for America” = What’s good for GM is good enough for homeowners.

  161. The gov. would rewrite the mortgage at 28/36 and the preferred stock would be a “silent mortgage”.

    They would be a hard lender to get away from if you decide to walk. They’ll know your every move.

  162. @Kevin…

    You said this to me: “That sense of entitlement is so narcissistic I really do hope you have a full recourse loan and they come after you for the difference.”

    What sense of entitlement? I have a sense that when I buy something from someone in a regulated industry that it is actually worth the amount I have paid for it. I had no idea that they drove the prices up with their lending practices which hurt legitimate qualifed buyers such as myself. I honestly thought that was what the market was going for. I have a sense that we have elected officials and agencies that are supposed to be regulating this and now I see that they were not. If that is what you mean by “sense of entitlement” then I agree.

    You wish they come after me for the difference? That’s nice of you to wish that but I am afraid that in CA all original loans are considered purchase money loans and are non-recourse. I appreciate the thought, however.

  163. I’m interested to hear what plan you have conceived, Mr. Mortgage, but given that most mortgages appear to have so many owners via securitization I’m not sure how any plan could be implemented short of invoking eminent domain to seize every house in the country. If something along those lines is brought about then we’ll know for sure that the rule of law is dead and we are in 100% makin’-shit-up mode for the foreseeable future. Right now I estimate we’re at about 15% MSU but the trend is strongly upward. :-)

    PS: such friendly people here!

  164. the big deal is still employment .If you loose your job how can you get a mod? if you cant get a refi then rent the house and stay with family until they foreclose at least you will get 2yrs of rent and invest in ag stocks and some gold at least you will save face and get the stimulus you deserve. good luck and use common sense the ship is sinking grab something that floats .

  165. redeye:

    No, that’s what you THINK is being talked about here. Most of the people posting here have been bandying about proposals that range from reasonable (private banks, with the agreement of their MBS investors, going with principal reductions because they minimize losses vs. foreclosure) to delusional (everyone with a mortgage gets their principal reduced, across the board, whether they’re underwater or not). Just look back through the postings over the last few weeks.

  166. Hi Brock – I will let everyone know shortly. But as a hint, it involves about $500 million is all — mostly for the purchase of heavy equipment and gasoline (not for the equipment).

  167. In the old days people ceremonially burned their mortgage once it was paid off. I guess the new tradition can be to burn the mortgage when you default, and the house along with it.

  168. “You’re not going to get a program approved that helps people refinance loans on their homes and then allows them to turn around the following year and make a profit on that home,” Frank said.

    Even Frank knows it. It’s an absolute NO NO. Walk away if you don’t want to be a mortgage slave. Keep dreaming, underwater bubble buyers. And Mr. Mortgage.

  169. @notseen:

    “I had no idea that they drove the prices up with their lending practices which hurt legitimate qualifed buyers such as myself.”

    I honestly have compassion for your position. But, if you are willing to let your guard down just a little here, can’t we say that it was simply not the right time to buy? People make mistakes — even financial mistakes (gasp!).


    “I have a sense that we have elected officials and agencies that are supposed to be regulating this and now I see that they were not. If that is what you mean by “sense of entitlement” then I agree.”

    A house is an asset and asset prices both rise and fall. Did you expect otherwise? There is no governing authority to regulate prices such that they’ll only rise.

  170. Brock Sampson said:

    “…I’m not sure how any plan could be implemented short of invoking eminent domain to seize every house in the country…”

    Hi Brock, time to recalibrate your makin-shit-up meter:

    http://pubcit.typepad.com/clpblog/2008/09/stabilize-home.html

    Leave it to a Loyola Law Professor to come up with a clever way to stiff the MBS investors (I’m guessing most or all of the contracts have language to address these government “takings” and no doubt leave little in the way of recourse for the investors).

    That would be a sight to see, no? The government waltzing in and seizing private property, stiffing the Teacher’s Retirement Fund of Finland (and the gazillion other MBS holders) and then giving the houses back to lucky lottery winners (the formerly over-leveraged and foreclosure-bound “homeowners”), much to the chagrin of the 70+ percent of the country that was never in any danger of foreclosure. Imagine how nice it will feel to see your spendthrift neighbor win the Great Bailout Lottery while you toil away paying your (non-underwater) mortgage. Fun!

  171. @notseen:

    My second reply was a bit incomplete (you might think it is unfair).
    You probably meant that regulators should have been making sure that certain risky loans were not made. OK, I would agree with that.

    But, I have an honest question to ask you.

    When you bought your home, did you believe the price was fair?
    If you have since changed your mind about the price being fair, then I’d be interested in knowing why.

    I would also be interested to know if you received any advice from any bubblesitters at that time.

  172. @Dee

    We have two sides vociferously defending their positions. One side saying “no help” the other side advocating either a principal reduction or other assistance for home retention. Is there any compromise to these polar positions?

    I strongly agree with you on the need to find some workable compromise.

    One thing I’ve suggested before that MIGHT not incite a civil war would be…

    1) make some principal modifications, financed by loans from gov’t to banks

    2) But, any 3rd party can “buy” the house + modified loan by paying a 5% cash premium. So, the mortgage mods would be ‘market based’ and not a ridiculous lottery jackpot for underwater homeowners. If you think an underwater homeowner is getting a sweet deal, you can buy his house from the bank for around the same terms as the mod (plus a 5% premium so as to slightly prefer people staying in existing homes)

    I think both underwater homeowners and bubble-sitters are have incentive to agree:

    1) homeowners probably can’t get a better deal without instigating a riot or civil war by the 80% remainder of the population

    2) There’s a risk that if we don’t find some sort of solution, the gov’t will take an even larger proportion of the losses on itself in terms of the national debt, which any bubblesitter would abhor, since that means all our grandkids will be paying for Javagold’s mortgage modification.

  173. w.r.t. the proposal I mentioned above, I think it would actually work because…

    1) it helps the market’s price discovery mechanism

    2) most of the principal writedowns required to keep someone in their home would *still* not make the property a screaming deal. If someone is 150k underwater on a 500k mortgage, they might need just a 75k-100k writedown to stay in the home, whereas the bubblesitter could buy the same home on the market for 350k.

    3) It mostly eliminates the wrath of bubblesitters, since homedebtors do not get ridiculous lottery jackpot sorts of loan mods — if they did, someone can easily snatch it away from them (for that small 5% premium in cash)

    4) banks immediatly get some new capital from the pool of cash that is sitting on the sidelines.

  174. I’ve been reading these comments and I won’t hide the fact that I favor the market correcting the way it should. I’ve listened to both sides with an open mind and I can understand why some people are so impassioned with so much of their livelyhood at stake but I’d like to ask that we try to step back a bit from our passions before we start to sound like a yahoo equities board, (another area of investments), that’s not doing so well now.

    It doesn’t look like there are many tales of loan mods good or bad to speak about. So I wonder, considering the strong feelings of the majority to not bail anyone out, why does anyone think a principle reduction will work?

    I’ve heard a few people say that this is a solution that the banks will undertake. Well I wonder, why would they do that? Because we make them? While it’s true that our gov’t gave money to the banks I remember that this money’s purpose wasn’t eventually to bail out any current homeowner but to simply get cash flowing to businesses again to start new borrowing.

    There has been a pretty strong backlash politically over bailouts since some of the original takeovers/investments in AIG and several large banks, now car companies. I’m not so sure that you are going to see the support in congress to approve mandating the banks to reduce principle in loans gone bad for several reasons.

    1. The majority of the banks havn’t taken federal money. How are you going to make them give principle reductions?

    2. The law, courts are not going to let the U.S. gov’t step all over contract law so this would have to be volutary for banks. Lots of sugar would have to go to them.

    3. Human nature – this principle reduction will have to go across the board to everybody with a mortgage or the small annoyances you’ve seen on this blog will be multiplied by 1000 which = Riots in the streets and people marching on Washington in protests bigger the the Vietnam war days.
    4. Feasably impossible. I’m not going to take the time to do the math but do you have any idea how much it would cost to reduce the principle in all home loans? Many houses are 100k to 300k underwater? How many mortgage holders are going to be happy if they don’t get their writedown.

    If my gov’t all of a sudden tells me I’ve got to pay for those principle reductions in the trillions. I won’t riot but I’ll join that march on Washington.

    From what I see of Obama’s current plans he is going to first spend money on stimulus. I don’t hear much of anything on home debt forgivness, just lip service to people who are hurting. Right now principle reductions sound like wishful thinking from individuals during a bubble collapse.

  175. Javagold – “and the person who bought a home for $800K on a $100K income, definately stretched things , but there is NO way his purchase price should have dropped 40-60% in a year on a real estate PURCHASE (not investment)……this is not penny stocks we are talking about here”

    His purchase price should positively have fallen by that amount if the divergence between what that home would rent for does not satisfy the underpinnings of an 800k house. Valueing real estate, is very similar to valueing a bond. Discounting cash flows. Good rule of thumb for real estate is 100X monthly rents. I’ve seen too many so called 700K homes renting for $1750 per month. Guess what, that stucco box should fall by 60%+.

    Question for those who bought a home post 2000. Could you afford the home when you bought it? Other than the home being worth less now, why are you lamenting the purchase? What were ou thinking when you purchased it, wow what a great investment, or a great place to raise a familty maybe both?

    How many pro mortgage mod folks live in recourse states? I suspect most of you live in CA or other non-recourse states.

  176. I have been reading the post here over the past couple of days, and I just don’t understand why people can’t comprehend the need for principle reductions and the inevitable fact that they must, and will eventually happen. They are coming and very soon because it is the only viable solution to this crisis that will take down all of us in this country without them. We are not in a position to argue about who, what, where and when, but rather we need some sort of stabilization in housing or our entire economy will in fact collapse. We do not have the privilege of time to sort this out and certainly not the financial stability as a nation to wait. With each and every foreclosure we see values of properties in entire neighborhoods collapse. This hurts would be sellers from moving up. This hurts would be sellers from obtaining job relocations. This hurts retirees from retiring. The harm in continued falling prices due to foreclosures and walk aways is crushing our societies ability to maneuver through life. While stuck in homes we can’t sell we watch opportunities ultimately good for the country pass us by. We watch decisions that are forced upon our families rather than making sound decisions in our families best interest. Nothing good is coming from the massive price adjustments to home owners.

    While being strict in terms of principle write downs being privately done between the lenders and homeowners, I am not naive to think some support may be needed and already given to the lenders to allow them the opportunity to do so. I see no reason that BofA and Citi for example could not be engaging in principle write downs right now given the billions they received in bailouts. In fact that was what I thought it was ultimately intended to help secure. Silly me I suppose…

    I am not suggesting bail outs of homeowners, but rather actions by lenders that will reduce foreclosures and walk aways that in the end will help to stabilize prices. Not keep them elevated, but from over correcting which is where we are heading. Some areas are already back to 2001 – 2003 prices and still falling. We need to stop them from going so low that they ultimately inflict damage on those not involved in this mess. Someone that bought in 1998 and is set to retire shouldn’t see their values plummet to levels lower than what they paid due to an over correction in market conditions and that is what we will soon be facing nation wide if we do not act soon. We cannot have peoples lives disrupted to the point that they can’t retire at 65 – 70 because their homes they purchased 15 – 20 years ago have dropped in value so much that they are forced to keep working and can’t sell. Even if they could sell nobody could afford to buy them. We simply do not have the jobs in this economy to support this kind of mess and it will wreak havoc on any attempt to pull out of this recession in the next couple of years. In fact it could cause us to spin out of control and enter into a full depression if we are not careful.

    While I am in no way a proponent of the massive bail outs of future tax payer money that this fed has squandered away recklessly, I am a proponent of government assistance where it makes sense. Their reckless stimulus packages must stop immediately, but we will need support as a nation just the same. Lets try extended unemployment insurance with re-training as a mandate to get the added benefits. The training is in areas of the country that you are collecting in that show job prospects in the near term future. Lets stop squandering revenue on helping those that need to fail like the auto manufacturers who are clearly dead. How throwing money at them was in anyway was productive for our economy and hence good for America is beyond me. That money could have been used on viable solutions that would enhance our ability to grow as a nation.

    I have been reading through Obamas package and it is a joke. The Mayors report and subsequent request is totally ridicules and will only serve to harm our countries ability to get back on the right foot. Building wings on existing libraries and convention centers is only adding long term debt for short term job gains that when gone will leave us more in debt and with even less employment. Any job created that does not have either long term implications of continued employment or is a public safety issue (i.e. bridge repairs) should not even be considered. Only public safety works projects or situations that have long term employment in mind should be considered period! Enough of more of the same in Washington. Hey, I thought Obama represented change? Yeah right!

    We have so much to do and so little time that we cannot continue to make mistakes as a nation in addressing our failures and they are many. STOP bailouts immediately! Demand all money go to long term or safety infrastructure investments ONLY! Lean on lenders to do principle reductions or allow judges to do cram downs and get the same results in the end. We are going to pay one way or another folks, so be smart and pay now intelligently or pay later at a much higher expense and with much more damage imposed on our nation and hence our children…

    Put your differences aside and look at the good for the overall country if done right. I agree if we are going to continue to follow the same totally reckless policies of Paulson and Bernanke then screw it and lets just rise up and revolt. If we can however get this thing steered in the right direction then maybe we have an actual chance of a recovery in the next couple of years.

    What say you?

  177. Notseen – “I have a sense that when I buy something from someone in a regulated industry that it is actually worth the amount I have paid for it. I had no idea that they drove the prices up with their lending practices which hurt legitimate qualifed buyers such as myself. I honestly thought that was what the market was going for. ”

    What are you talking about regulated industry? There is no central valuation body that says this asset is worth such & such. Are you kidding me! Lenders didn’t push prices up, buyers did, by way of laxed lending. How do you arrive at a valuation for anything that you purchase? Sorry to say, that the stock or bond market is far more regulated, and guess what tens of millions of people value the same assets very differently. If you bot stock on margin a year ago, thinking that stocks were going to go up, should you be able to go back to the broker and tell him you no longer want to pay your margin loan, as there is no reason a reulated industry like stocks should go down 50% as Javagold suggests.

  178. “What say you?”

    I say: “I sure as hell hope no one takes the knuckle-headed social engineering schemes proffered in these comments seriously.”

  179. For those that believe that we must make principal mods or else…
    I am curious what you believe would happen if we don’t.
    Can someone paint a plausible scenario (not just scare-tactics story) for what could happen down the road if gov’t does nothing else from here?

    I currently see the market correcting itself, and yes it may overcorrect a bit, but I do not see a doomsday occurring.
    I anticipate:

    – falling house prices (another 20-30% in bubbly states)
    – severe recession for 2 years, reduced consumer spending
    – 15M foreclosures
    – failure of several more major banks

    It’s painful, but it doesn’t look like great depression 2. Can we here from someone who disagrees?

  180. Here’s the problem as I see it.

    By far, the leading cause of foreclosure is negative equity. Unless the problem of negative equity is addressed via principal reductions, 10 million foreclosures will be added to an already record inventory of unsold homes over the next five years. If this happens, prices for all homes, with or without a mortgage, will blow right through the national -36% peak to price/income bottom with no end to the spiral. If this happens, you can cross economic recovery off the list for 2009, 2010, 2011 and 2012. By then, it won’t be called a recession anymore.

    Let me make this clear: I am not advocating a single tax dollar for any homeowner, but the banks are. They are playing the depression card to transfer their losses to the taxpayer. And they now have a willing partner in Washington to save them, save homeowners and save the country, at our expense of course.

    Who is the biggest proponent of foreclosure moratoriums? The banks. Who gets bailed out by the FDIC mod-in-a-box? The banks. Principal reductions are the only solution keeps inventory off the market and forces the banks to accept financial responsibility for their bad decisions. If they then need another taxpayer bailout to survive (and they will), then that’s a debate for a later day. I say let them fail, but that’s just me.

    If however, the banks succeed in preventing principal reductions, the mounting foreclosures will result in a massive $1 trillion+ bailout of homeowners with our tax dollars – something we all can agree that we are against.

    Like it or not, that’s the way the game has been set up. Somebody’s gotta take the loss. The banks or us. I vote for the banks.

  181. For those that believe that we must make principal mods or else…
    I am curious what you believe would happen if we don’t.
    Can someone paint a plausible scenario (not just scare-tactics story) for what could happen down the road if gov’t does nothing else from here?

    (a couple of my comments are stuck in moderation…? maybe it’s the previous name?)

    I currently see the market correcting itself, and yes it may overcorrect a bit, but I do not see a doomsday occurring.
    I anticipate:

    – falling house prices (another 20-30% in bubbly states)
    – severe recession for 2 years, reduced consumer spending
    – 15M foreclosures
    – failure of several more major banks

    It’s painful, but it doesn’t look like great depression 2. Can we here from someone who disagrees?

  182. Perhaps my favorite comment ever:

    “Lenders didn’t push prices up, buyers did, by way of laxed lending.”

  183. (I apologize if this turns out to double-post, I’m stuck in moderation for some unknown reason)

    For those that believe that we must make principal mods or else…
    I am curious what you believe would happen if we don’t.
    Can someone paint a plausible scenario (not just scare-tactics story) for what could happen down the road if gov’t does nothing else from here?

    I currently see the market correcting itself, and yes it may overcorrect a bit, but I do not see a doomsday occurring.
    I anticipate:

    – falling house prices (another 20-30% in bubbly states)
    – severe recession for 2 years, reduced consumer spending
    – 15M foreclosures
    – failure of several more major banks

    It’s painful, but it doesn’t look like great depression 2. Can we here from someone who disagrees?

  184. Hey Notseen, this isn’t a friggin’ electric utility or phone company or other regulated industry, it’s real estate and if you misjudged the long-term market (not the 6 month flipper market), that is your problem.

    I chuckle at all of you believe that modifications of loans will somehow “solve” this crisis – the fundamental problem is that so few people can truly afford many of these CA & FL & AZ homes on a long-term basis and won’t ever be able to afford them until they drop in value or their incomes increase, which the market should take care of in due time. Cutting them a break to keep them in their homes artificially does nothing for the neighbors other than transfer wealth to those that shouldn’t have bought in the first place by allowing them to have a higher standard of living than they have rightfully earned.

    If the bank itself decides that it is better to cut you a modification deal rather than foreclose on you, then lucky for you and that is a business decision for all. But having the government mandate principal reductions and the fund it thru my and my children’s tax dollars (either explicitly or implicitly thru the use of government programs) is unacceptable to me and I think will be unacceptable to vast stretches of this country, with the exception of the East & West coasts.

    For all of you hoping for the principal reduction lifeline, the worst thing that happened for you was the first Paulson-Bernanke-Pelosi-Frank giveaway bailout happening and now the auto bailout, as the last few months and Q1 2009 will show that none of it really worked the way it was sold to the public and will make any future big plans much tougher to pass. Many Congressmen and Senators voted for the bailout in the face of high public opposition back home for “the good of the Country” and they won’t do it again since the first one was a bait and switch job by Paulson and the banks.

  185. Got to love the common sense!

  186. >> Perhaps my favorite comment ever:

    >> “Lenders didn’t push prices up, buyers did, by way of laxed lending.”

    Laxative lending offers limited help to sufferers of irritable borrower syndrome (IBS):

    http://www.webmd.com/ibs/irritable-bowel-syndrome-laxative-safety

  187. We already have principle reduction.

    When a home is foreclosed, the principle is reduced.

    More importantly to the bank: through their principle reduction they got rid of a buyer who bought a home or took a loan that they couldn’t afford.

    To reduce principle for the current homeowner the bank has to take a hit $$$$wise and/or percent-wise and/or loan term-wise. At the same time they still have to put up with an owner who “disappointed” them and will probably do it again (50% mods fail?).

    Principle reduction mods are similar to both spouses going to a marriage counselor after one was caught cheating. There is a chance that counseling will work (Anyone want to put a % on this?). Foreclosure is similar to divorce: may be more painful during the trial but when it’s over, it’s over.

  188. Report out this morning says stimulus package will include cram-downs, allowing bankruptcy judges to reduce the principal balances of primary residential real estate.

    I believe this will force banks to begin offering principal reductions in loan modification negotiations, curtailing foreclosures and slowing inventory growth so the housing bottom occurs in 2011 rather that 2021. Better to make a deal with the devil you know (borrower) than some low-level judge clad in sandals and beads from UC/Berkley who thinks housing should be free.

    The down side, of course, is that this is the final nail in the securitized mortgage market coffin. Non-conforming loans will now cost 9% and you’ll need a 780 FICO with 40% down to qualify.

    So don’t confuse “bottom” with “rebound.”

  189. Jonathan, in response to your question I must first say that what you admit yourself would occur would cause an outright depression that would make the last one look like a walk in the park. I think you have answered the question yourself and totally argue for principle reductions in your view.
    You say falling home prices by 20% – 30% further in bubble states. California, which makes up 40% of the RE market has already fallen by 50% + and you are telling me an additional 30% could happen? An 80% fall in RE values means a million dollar home would go for 200K!!! A home that cost 400K would now sell for 80K!!! That would cause such a severe crash in every single industry in the country and the damage to society would be beyond what one could even attempt to imagine if that were to occur. Let’s hope even without principle reductions that this does not occur. With principle reductions I see a drop in bubble states of 5%-10% tops moving forward and 10% or so for the rest of the country. We then would see a stabilized floor in the market that would stay for 1-3 years and then an eventual historical rise of 2%-4% moving forward. I would estimate a recovery by 2012 in terms of a stable market with historical (nominal) returns moving forward.
    You say a severe recession for 2 years and reduced consumer spending. What do you think is happening now? We will be lucky if that was all that would happen and again without principle reductions. Try a 3-4 year recession (now in year 2) and very little consumer spending for the foreseeable future anyway, regardless of what we do or don’t do. Even with principle reductions I see this occurring. Without them we could have a severe recession turn into a full blown depression and recovery pushed of for everything and everyone until perhaps closer to 2020 or so. See Japan and their lost decade for an example of what direction we are heading in. This country is ill equipped to deal with 5 million additional foreclosures over the next 2 years in my opinion.
    You say we will have an additional 15 million foreclosures. Lets hope the hell not and again regardless of whether or not we have principle reductions. I am hoping for just 1-3 million more with them. We had 1 million in 2007, 2.5 million or so in 2008, and we are looking at by most estimates 3-5 million more in the next 2 years. That is 8-9 million on the high side. I am hoping with principle reductions we can cut that figure to 1-3 million more over the next 2 years. We currently have close to 20 million empty homes today of which roughly 5 million are for sale. Toss 15 million more in foreclosure onto those figures and we would be looking at 35 million empty homes with 20 million for sale or more. We only have 300 million people in the entire country for crying out loud!! We would have something like 1 in every 5 homes sitting vacant. That would be the mother of all depressions if that were to occur.
    Lastly you say failure of several more banks. I say again without principle write downs we will see 1,000 – 3,000 additional bank failures minimum. We have 8,000 + banks in the country and CRE will take down at least 1,000 all by itself. The housing bust will knock off another 1,000 and caught in the crossfire an additional 1,000 may falter. Again I say this as a minimum figure. With principle write downs we can work with the larger banks and stronger regional banks to reduce failures by working with them. Allowing the weaker ones to falter like a normal market will allow the stronger ones to get healthier quicker and get whatever financial backing is required back into the hands of the tax payers. We cannot afford to allow the banking and lending industry to seize or we all fail. No money being lent out crushes more than people’s ability to buy homes. This is why the Government is trying so hard to not allow this to occur. They are simply going about it in the wrong manner is all and need to address the issue directly. Principle write downs by lenders will do this and not bailouts by tax payers to everybody.
    We will need to spend money to prop things up temporarily, but if done right we will get it back. The root cause of the economic turmoil is directly tied to home foreclosures and lost equity in all peoples homes as a result. With 70% of GDP tied to consumer spending and MEW at negative it is no wonder everything is seized up. No lending, no borrowing, no buying is the ultimate result. Now I am not advocating for us to have things back like they were at all. I am saying that economically speaking to avoid a severe crash to society we need principle reductions and we will be getting them shortly like it or not. Either the lenders will start doing so shortly or a law will be passed to allow judges to do it for them, but either way they are coming. We have no choice at this point because of the situation we have been placed into by our reckless Fed and Treasury up to this point. Don’t forget the Government now owns and operates in essence 50% or $5 Trillion of the mortgage market. They do not need to get public approval or really have to worry about public sentiment to do this. In fact it has already started to occur in a sense, but we just have not been told about it yet. You know that backroom talk where deals get done that you only find out about once they have already happened. That is what is going on right now.

  190. If you all are so worried about people being incentivized into walking away because they are under water, wouldn’t it be better if the govt forces them to stay and pay? Instead of spending trillions of dollars to pay for idiots’ houses, we should just threaten to kill them if they leave. Or, make their debt the same as a student loan or child payment. You can run, but you can’t hide. That’ll keep people at home and paying, stop the foreclosures, and it won’t cost a cent. What do you think?

  191. Good plan, Vladamir Putin.

  192. You’re the one advocating the Juche Kim Il Sung plan, commie.

  193. redeye,

    In other words: prices are going back to 1995-1996 levels right?

  194. A little math:

    (end of 2007 data)

    Median household annual income in CA: $59,948

    at 28%, largest possible mortgage = $220,000 (4% for 30 yrs w/20% down ($55k) = $1050/month = $12,600/year

    $59,948 x .28 = $16,785

    Insurance & Taxes: appx: $4,000

    Total payments for PITI: $16,600 +/- (limited out @ 28%)

    So, the most house that the median household in CA can afford is $275,000 (presuming they have $55K to put down and their FICO is over 740?)

    Cost of median CA house at end of 2007: $475,460.

    Looks like it would take a “principle reduction” of $200K before the median CA household can afford the median CA house.

  195. @Jonathan…not the right time to buy is one thing but buying something that drops over 40% is another. Anyone would have swallowed a reasonable drop but this is a whole different scenario.

    I realize that prices rise and fall and did not expect otherwise as you suggest. But again, and this is the third time I make this point now, this was not a normal price fluctuation. Please don’t think I am so simplistic to assume that any governing body would regulate housing prices as that is not what I am implying. What am I stating, is that to work in this field you need some kind of a license (real estate license, mortgage brokers, etc…) and part of that license includes meeting ethical standards. Even banks must report their operations to the government yearly with their taxes so, in that sense, it is regulated. I honestly believed that there would no way that this kind of thing could have happened.

    When I bought the home, I thought the price was fair BASED on the prices of all the nearby homes and the housing trends in my area. What else can I base it on? Never once did I consider that they were making too many bad loans that would soon default. I believe that is unreasonable for the consumer to be put into that kind of position.

    Of course now I see the price (and all the prices, the entire market even) was not fair – it was fake. By making loans available to everyone they created more demand which drove up the home prices.

    @JJ…its not my problem its your problem. I live in a non-recourse state so I can walk away. The bank (wells fargo in my case) is being bailed out by the federal gov’t and my loan is on their balance sheet. So you already are paying. You will pay less if they modify my loan as I will agree to more than what they could sell the house for simply because I am able to stomach a small lose in order to not have to go through the hassle of moving.

    I didn’t “mis-judge” the market. I am a victim of outright fraud created by the banks who created an artificial demand which drove up the prices of homes. A reasonable drop I would have agreed with you but this was obviously not reasonable.

  196. Anything’s possible, but 1995-1996 would be one helluva overshoot.

    In the long run, home prices cannot sustainably grow faster (or slower) than incomes. Matching long-term growth in median family income to home prices nationally results in a 36% peak through trough decline in the Case Shiller national index. As of Q3, the index was down 21% and will likely finish the year down 24%. So we are now 2/3 of the way to a natural level based on historical methods of valuation. That would take us back to 2001-2002 levels.

    Obviously, CA/AZ/NV/FL is already down by that much and then some and the ultimate declines will be greater than the national average. But I believe the bubble states are farther along in this process than DC/NY/Bos/Chi/Sea and will find bottom sooner than those once “immune” areas.

    I also believe home prices will actually rise in many areas this spring/summer, bringing out both calls of a false bottom and buyers catching falling knives as they are overwhelmed by sideline inventory as the selling season progresses and prices begin declining again in the fall. In the first half of the 1990s LA bust, prices leveled off or rebounded each summer only to continue their slide later in the year and flatlining for the rest of the downturn.

  197. Steve, you did misjudge the market. You are not a victim. You were given hundreds of thousands of dollars! NOT A VICTIM. You invested poorly, stop blaming other people for your mistakes.

  198. Sorry, that post was directed at notseen, not Steve.

  199. Good news Steve, Mr. M’s “Scariest Chart Ever” from last week has the median home price in California at $258,000.

  200. Notseen, well said (and just try to ignore Kevin)

  201. Yeah, ignore me. Play the victim game. Gamble with the bank’s money, lose, claim fraud, and plead for sympathy and more money to bail you out. Let’s take every loser in Vegas and line their pockets with money. They are victims of fraud too, right? At least they are gambling with their own money and don’t expect a bailout.

  202. Nosteen,

    The price drop you are experiencing was both normal and reasonable. It was the price increase that was not normal nor reasonable. Yes, you made a mistake. But so did the bank when they loaned you money against an absurdly inflated asset. The purpose of a non-recourse loan is to force the banks to regulate themselves when making loan decisions. So if you and the bank cannot come to some kind of mutual agreement to share the loss, you can exercise your right to walk and they can exercise they’re right to take the house.

    Everybody moves on and both parties (hopefully) learn from their mistakes.

  203. notseen,

    “if you can keep your head while all around you are losing theirs” R. Kipling

    Why would you want to make the same mistake as your neighbors?

    When you applied for your mortgage, could you afford the house? If not, didn’t you commit fraud?

    Has the house fallen apart? Was it built on a landfill? Is it still a livable house?

    If your principle were cut in half, would you be happy with the house? If so, then the only problem here is that you feel you paid too much for the house at today’s valuation.

    Did you pay too much when you bought the house? IE: were other people paying a lower price for a similar house? If not, you paid market rate for the house.

    If your income has changed due to layoff or downsizing, then we can all feel your pain, but that is another issue.

    If you can still afford to live in a house that you at one time loved enough to buy and you’re thinking of walking because some statistical company says your home is worth less, why would you do that? That seems financially imprudent and, unless you’re single, very disruptive to the family.

    Even if there were fraud with the lenders (I believe there was greed but I also believe that people really believed that this would not happen to the extent that it did), running off the edge because your lemming-neighbors are doing it seems foolishly suicidal.

    good luck

  204. redeye,

    @ $258K housing should have reached “affordability”.

    What I don’t know is whether the median income has dropped in the past year.

    If the income drop was not large and if $258K is correct, then the bottom should be close.

    People want to own where they live. As soon as they can afford the house AND BELIEVE THAT PRICES WILL NOT FALL FURTHER, then they will buy.

    Good chance that the market will fall below affordability level before it turns

  205. I know that there is a strong push by many on this blog for principle reductions as well as a strong distain for them. What about the govt simply investing money in developing bubble areas so as to increase the value of the homes in the area?

    This is most specifically geared towards the south IE (Temecula through Corona)….If a freeway was built from the 15/215 interchange to San Clemente, it may be a cheaper way to get these homes closer to a breakeven point then principle reductions. Not only that, it would offer a lot of employment opportunities and provide long-term sustainable growth to the area as it would finally allow for reasonable commuting to the OC where several high-tech jobs are available. I have quite a few aquaintances who work in high-tech fields who are leaving the state because they have to choose between over-priced homes in the OC or a ridiculous commute to Temecula/Murrieta/Corona. The cost would be high, but it may offer more immediate and long-term benefits. I know this does not apply to many on this blog but I am sure there are many it does apply to. Just a thought…

  206. Kevin, you are not being rational comparing gamblers in Vegas to homeowners. Home values affect everyone as they go down. It pulls the economy down with it. Gamblers just pull themselves down and have zero affect on the overall economy. Even if you don’t own a home you are affected by home price declines. Jobs are being lost in massive numbers due to this trend and more will be lost. You best hope you don’t work in an area that is tied to housing and there are not many that are not tied to housing in some way. If you own your watching equity simply vanish as a result of this. Try telling that to the millions of folks that were lining up to retire over the next 5-10 years and can’t now because they were counting on downsizing and using the profits (their 401K’s seeing as many didn’t have them back then) to retire on. This is not about you so don’t make it so personal. This is much more about the future of this country and its economic viability. It is about the largest segment of the population getting hit over the head financially just as they are heading into their golden years. You need to stop being so damn selfish and think of the greater good for the country and our parent’s generation. We have earnings potential still left and most of them don’t. Homes will turn around and rise in value again this is not forever. People have to start understanding the impact of all of this on our overall economy and that means you and I too… Something needs to be done.

  207. Steve, and that is exactly what they are doing in the West. Pending home sales rose naerly 20% in november which is a reflection of potential January sales numbers. People are indeed buying the REO’s that are hiting the market in big numbers and have been the past couple of months.

  208. Stu- “Home values affect everyone as they go down.”

    Only if they’ve been using their houses as ATM machines. The principal reductions being proposed around here is nothing more than filling up the idiots’ ATMs.

    “Even if you don’t own a home you are affected by home price declines. Jobs are being lost in massive numbers due to this trend and more will be lost.”

    Too many RE Agents, mortgage brokers, and housing developers. They were overpaid and overexpanded. Like many industries during a recession, they must contract. I don’t believe subsidizing their jobs is a good rationale for subsidizing idiots’ loans.

    “If you own your watching equity simply vanish as a result of this. Try telling that to the millions of folks that were lining up to retire over the next 5-10 years and can’t now because they were counting on downsizing and using the profits (their 401K’s seeing as many didn’t have them back then) to retire on.”

    Houses aren’t supposed to be investments. That’s the problem. People thought they’d get rich off of real estate, and the whole thing was just a big nasty bubble. They need to get the greed out of their system ASAP. Sorry to the millions of people that thought the magic money machine was going to pay for their early retirement, but life isn’t a giveaway game.

    “It is about the largest segment of the population getting hit over the head financially just as they are heading into their golden years.”

    No, it is not. It’s about a small percentage of the U.S. population that greedily bought into an obvious bubble, and wants the rest of the country to pay for their VERY costly mistakes. Baby boomers in general have zero sympathy from me. They’ve sacked my generation with over $53 trillion in unfunded liabilities. Now I have to listen to them bitch about their 401k falling (based on a bubbled market) and their bubbled house’s value falling? Screw them.

    “You need to stop being so damn selfish and think of the greater good for the country and our parent’s generation. ”

    I’m not being greedy, this is my response to a pandemic of greed and entitlements that exists and is personified in exactly what you’re entailing. People who live on debt, buy what they don’t need, for more than they can afford, then pass the bills onto their children. And you think we need to return to them their “profits” of bubbled out housing markets and stocks?

    Don’t call me greedy. I don’t want anything except to see an end to this pathetic narcissistic disease that has poisoned peoples minds. You are an apologist for that garbage. This disgusting mess has nothing to do with me, I’m just calling it what it is.

  209. Steve, three things…

    If median household income did fall in 2008 or does in 2009 it will only do so by 1-2% as it generally tracks the rate of inflation, or deflation if you will.

    Also, most metrics comparing price to income use median family income rather than household. It’s a different way of skinning the same cat, but the outcome is family runs a bit higher, probably $70,000 in California.

    Last, the $258k number is from DataQuick. I don’t know anything about their methodology – what, where and how they are counting – but no metric is 100% accurate. Kinda like polling, there is a margin of error and some are greater than others.

    The problem with deflation is expectations. If we think prices will keep falling, we will delay the purchase. But if we all delay our purchase, prices will keep falling without regard to valuation methods.

  210. Hey Steve,

    If a borrower and a bank mutually agree to alter the terms of a contract, how does that cost you a single dime, and more importantly, why do you care?

    You seem to think of yourself as the champion of the free market and individual responsibility, so where does all this “people shouldn’t be allowed to…” stuff come from. You are the only person here calling for government intervention.

  211. Sorry Steve, that was for Kevin

  212. redeye,

    Thanks for the clarification.

    All statistics need to be taken with a grain of salt. I used the numbers I did just for illustration and they seemed to be the last best numbers that I could find.

    When I went to the assessors in my town and asked how my assessment could be so high, I was told that, as a rule, property tax assessments do not take into account “forclosure sales, short sales, auction, bank or “distressed” sales” but only “normal” sales. When I asked how they could tell the difference they said “by the price”. I asked: “Isn’t an auction the true value of what a house is worth?” Their answer: “No”.

    Re: “expectations” I believe that there are a lot of people out there who are waiting for the bottom. Some have a “jump in” point. If I want house A at X dollars and I see house A hit that price point, I will probably watch it. I suspect it will go below X. But, if I want it, as soon as I see it rise from a low point below X, I will probably jump.

    No one has mentioned law #1: supply & demand: right now houses are being built at about 500k units/year. During the boom I believe it topped 1.5 mil./year. We lose houses at about 900k-1 mil/year through fire, flood, rot, insects, old age, etc. Population is still growing. Pretty soon the number of households should exceed the number of homes.

  213. Kevin, “Only if they’ve been using their houses as ATM machines. The principal reductions being proposed around here is nothing more than filling up the idiots’ ATMs”

    This is simply not true at all. It has nothing to do with that. Pick a street with 20 homes all valued roughly the same. Foreclose on 3 of them in one week. At REO they all sell for 40% less value. Now go try and explain to the remaining 17 homeowners with no HELOC’s and 30% equity why they just lost everything and are now underwater on their homes. They can’t sell, so they can’t move. Oh, try not to get shot in the process…

    “Too many RE Agents, mortgage brokers, and housing developers. They were overpaid and over expanded. Like many industries during a recession, they must contract. I don’t believe subsidizing their jobs is a good rationale for subsidizing idiots’ loans”

    Another fabrication Kevin? If you made it through the last test unscathed now go back and explain why only Realtors and builders are affected by home price declines. It so happens that 3 more homes just went into foreclosure on that street due to job losses. You see one was an electrician, one a plumber, and one a fireman. No work for the electrician because nobody’s buying and the same with the plumber. The fireman got downsized by the town due to falling revenue of taxes because of valuation drops on homes in the town. Oh and the 3 people that just
    bought have lost their down payments because these REO’s pulled comps 10% further down and those buyers only put down 10%. Try not to get shot again will you…

    “Houses aren’t supposed to be investments. That’s the problem. People thought they’d get rich off of real estate, and the whole thing was just a big nasty bubble. They need to get the greed out of their system ASAP. Sorry to the millions of people that thought the magic money machine was going to pay for their early retirement, but life isn’t a giveaway game”

    Well yes we know that now, but we have various means to sock away money tax free in financial plans while many of these folks didn’t enjoy that benefit. Most are old school and were not looking for huge profits and were quite happy. You see 3 more homeowners on that street were just told they can’t retire for another 10 tears. You see they had paid down their notes and had modest 150K gains they were going to invest and retire on. That figure jumped to 300K it seemed overnight, but they were not ready to sell and not greedy. Now the time is nearing but the over correction took 250K away and left them with 50K. That as it turns out will not be enough. Now go tell them that and try not to get shot again will you…

    “No, it is not. It’s about a small percentage of the U.S. population that greedily bought into an obvious bubble, and wants the rest of the country to pay for their VERY costly mistakes. Baby boomers in general have zero sympathy from me. They’ve sacked my generation with over $53 trillion in unfunded liabilities. Now I have to listen to them bitch about their 401k falling (based on a bubbled market) and their bubbled house’s value falling? Screw them”

    Yes it is, and you truly are one compassionate soul aren’t you? They don’t have 401K’s for the most part and didn’t buy into this market. They have had their homes for 15-25 years. They were not looking for anything and have done nothing. They are what are commonly referred to as collateral damage where I come from. The true victims of any happening that don’t involve someone.

    “I’m not being greedy, this is my response to a pandemic of greed and entitlements that exists and is personified in exactly what you’re entailing. People, who live on debt, buy what they don’t need, for more than they can afford, then pass the bills onto their children. And you think we need to return to them their “profits” of bubbled out housing markets and stocks”

    The principle write down have everything to do with fairness for the masses and nothing to do with greed. Investors and speculators don’t qualify as it is not their primary residence. It cost you nothing unless you are the owner the bank which I doubt. The majority of the people of which you speak are 25-45 year olds not 50-65 year old. Plus there are no profits here it is equity on something that they have earned by paying their homes down for years. They are victims of the younger generation’s greed that drove the prices up and helped to cause the massive over correcting fall down that is crippling them.

    “Don’t call me greedy. I don’t want anything except to see an end to this pathetic narcissistic disease that has poisoned peoples minds. You are an apologist for that garbage. This disgusting mess has nothing to do with me, I’m just calling it what it is”

    And an end will come soon enough, but it is the ending that is of importance here. How it looks and what it does to our nation’s health and strength. What is does to the populace as a whole and how prolonged it will be as a result is what I am trying to wrap my arms around and principle write downs is the only answer to slow this massive default wave from causing irreparable harm as I see it.

  214. I’m a homeowner.
    a) If yes, with whom?
    I’m going with Green Credit Solutions
    b) Please share your experience, good or bad.
    They sound good; their process is meant to inspire confidence and trust, and they do well at that, with phone availability and a step-by-step outline of what I should expect from them and from the lender, at least in terms of the timeline if not in terms of the outcome.
    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?
    Certainly. I’ve done similar things (sort of similar) in the past. However, it is clear that the lenders do not want to open a door to mass modification at all, and that is why, despite any considerations of ability, I went with a firm that hopefully does have an inside track, can do a bunch at once and has credibility with the lender. What is unknown are the alternatives acceptable to the lender, and as far as I can tell, these may morph in between today and next week, and probably will change when strong signals are generated by Obama. If I hada selection of cookie-cutters to choose from, I would certainly have proceeded that way. Without it, I went with the firm, even with a hefty fee and no guarantees.
    d) Friends or family experiences?
    Not yet, but my own searching on blogs has discovered a great deal of dissatisfaction with poorly done mods last year, and the prevalent view, which you’ve written about, that the lender can in fact get away with passing on even worse terms long-term for instant short-term relief, which means that if the lender can get away with it in aggregate, they will try to hold the line on viable deals individually. But I have heard a couple exceptions as well, especially in terms of short sales to a spouse or a relative, saving the home, and refinancing with fresh, decent terms.

  215. “This is simply not true at all. It has nothing to do with that. Pick a street with 20 homes all valued roughly the same. Foreclose on 3 of them in one week. At REO they all sell for 40% less value. Now go try and explain to the remaining 17 homeowners with no HELOC’s and 30% equity why they just lost everything and are now underwater on their homes. They can’t sell, so they can’t move. Oh, try not to get shot in the process…”

    The houses will not sell at 40% less value, they sell at market value. I don’t think you understand the housing bubble, but if values shot up 250% in a few years, that’s unsustainable, they’ll fall no matter what. So if those other 17 houses were purchased several years ago, there’s not a problem. If they were purchased more recently with no down payment, or liquidated their equity, they have to deal with it. Thanks for saying I’d get shot, that is random and again this has nothing to do with me. It’s reality.

    “Another fabrication Kevin? If you made it through the last test unscathed now go back and explain why only Realtors and builders are affected by home price declines.”

    The entire industry was bubbled. There are of course huge job losses. I’m not fabricating anything, you’re just unable to stay on topic as well as completely out of touch.

    “Well yes we know that now, but we have various means to sock away money tax free in financial plans while many of these folks didn’t enjoy that benefit. Most are old school and were not looking for huge profits and were quite happy. You see 3 more homeowners on that street were just told they can’t retire for another 10 tears.”

    If they were old school, they’re fine. Anybody that was planning to live on the excesses created by the housing bubble was not prepared to begin with. That’s the simple reality of it.

    “Yes it is, and you truly are one compassionate soul aren’t you? They don’t have 401K’s for the most part and didn’t buy into this market. They have had their homes for 15-25 years. They were not looking for anything and have done nothing. They are what are commonly referred to as collateral damage where I come from. The true victims of any happening that don’t involve someone.”

    If they’ve had their houses that long, they’re totally fine. Again, you sound like you’re bitching about houses not being at their absurd bubble prices. I don’t know what else to tell you if you cannot understand the absurdity that was the housing bubble. Until you crack that simple nut and learn what EVERYBODY already knows, you’re not going to stop talking like an ideologue and a complete idiot.

    I have compassion for people who are suffering, but none for those whose panties are in a twist because their profits when selling their house went from $500k to $300k.

    “And an end will come soon enough, but it is the ending that is of importance here. How it looks and what it does to our nation’s health and strength. What is does to the populace as a whole and how prolonged it will be as a result is what I am trying to wrap my arms around and principle write downs is the only answer to slow this massive default wave from causing irreparable harm as I see it.”

    No, it is not going to solve anything. It throws good money after bad, rewards people for poor investment choices, and will not reinflate the bubbled market (not that that should ever be done). If this were a good thing at all, the banks would be doing it. It’s a truly shitty idea, morally deplorable, and needs to be dropped now. You’re talking about doing it for the nation’s “health” and “strength”. Google “Junche” and you’ll find exactly what you’re talking about.

  216. To Jonathan:
    Basically, if loan mods don’t happen, people who are underwater will walk away and rent. After some variable time and some kind of downpayment, they will come back into the market, buying a similar house across town or across the street for a lower price. No biggie. The problem is that in the meantime the banks take big hits to the write-downs, and many become insolvent. After the owner-then-renter-then-owner-again is back, the bank is in the same position as before, except with a lower total value of assets and reserves because of the writedown. So the market corrects, banks write down the assets, and eventually everybody has a place to live, some with bad credit. The biggest problem is that both the banks and the borrowers get black eyes, and it takes time to unravel it all. Those black eyes will knock out some banks, and knock out some owners.

    The loan mod, if done correctly, serves the purpose of a smoother path to the same result: instead of giving the banks a mess of total losses, turn them into reduced performing assets, and the homeowners will meet them partway to avoid moving out for a few years while things sort themselves out. Cash-rich people on the sidelines still get good opportunities even though the drastic fire sales for opportunists will be less prevalent. Instead of driving off a cliff to climb back up the other side, it’s a path of switchbacks to make the descent and the climb up again easier on everyone. In the end you get to the same place. Doesn’t mean it’s going to happen, but it’s nice to think it could happen with less injury to the concerned parties. There’s my idealistic two cents.

  217. Kevin, REO sales are not market value sales but rather massive dumping of real estate at low auction prices meant to clear unwanted inventory off of the books of lenders ASAP. They are commonly sold for 10%-30% less than market value which is why they sell so fast. Often they are sold in packets and not as individual sales. Historically these actions tend to pull down over all prices to a point of an over correction and cause massive disruption to the typical sales activity in areas that were more speculative than others. This is exactly what is occurring today in CA. This activity hurts everyone including home owners that bought with 20% down on fixed 30 year notes. People get placed in positions where as they cannot sell, causing some not to be able to relocate for example for family or a new job. It causes all sorts of havoc and disruptions too many families that had nothing to do with it. They become as I said collateral damage.

    It is this very over correction that will harm the housing market for everyone. This is the largest bubble we have ever seen and instead of pockets of over correction we will see entire cities and town over correct. This will hit every single class of people causing even further damage to the economy than what would be typical in nature for times like this. First time buyers could be put off for decades from buying a home. Speculators and investors will simply vanish and are whether you agree or not a very important part of the industry. You do not have a clue as to how intertwined this all is do you? Nobody said the folks affected that had nothing to do with this were planning on living off of excesses. They were planning on retiring of what they earned through paying down their mortgage over the years plus the normal historical rise in value that they may also be lucky enough to enjoy.

    Just because they have owned a home for 15-20 years doesn’t make them alright if the market over corrects and wipes out their equity they earned. It was their money. You really don’t understand economics do you? I am less trained and schooled in housing financial terms as far as all of the slicing and dicing these lenders did with mortgages, but I am an economics major and very involved in the industry. Far from an idiot as you so suggest.
    Throwing good money after bad is what is called bailouts of the auto manufacturers for example. Having lenders write down principle to stabilize the most important market to our countries economy is called smart and necessary in times like this. Besides it is going to happen regardless of what you think because the powers to be are smart enough to know it has to get done. Look for sometime in January for it to start would be my guess. Now go take an econ 101 class and brush up on your knowledge so we can have a fair debate next time… whew!!

  218. Stu,

    No, market value is what houses sell for. People trying to sell their houses in competition at peak bubble price – THEY are the ones that aren’t going at market price. Banks are just more realistic and less greedy about the houses they’re selling than the idiot sellers asking for too much. The only people this hurts are the ones trying to sell at a bubbled price. Don’t call it an over-correction until we over-correct. Nationally we’re at 2004 prices. The bubble arguably started around 1998 when prices deviated from their traditionally-bound inflation curve. I’m not saying it won’t overcorrect, but it has not happened yet.

    Affordable housign is a good thing. Nobody “earned” equity if that equity is nothing more than artificially created bubble wealth. Cheap houses are a good thing for the future of our economy. Get people living affordably and that will spur spending. That’s the beauty of the free market. Housing prices crash, and all of a sudden people can reasonably afford houses again. Maybe even with a 15 year loan, providing more long-term assured equity.

    I know exactly how intertwined everything is. For all those years of excess wealth creation, everything intertwined shared some of the wealth. Now that we’re going through a correction, they’ll share some of the pain. So be it, it’s just the way it is. You’re an ideologue and only want to see things go up. Sorry, there’s no magic solution to bring this, just false hopes.

    You want people to automatically have bubble wealth recreated. That is beyond stupid, and something that a four year old would wish for. Reality is that it’s gone, and those slowest to wake up to reality will be the ones crying in the end.

    I am pretty sure you don’t understand the housing bubble at all, or how artificial and unsustainable the market has been. The fact that you think we’re over-correcting already is sign enough that you don’t know what you’re talking about. Principal reductions are the single most awful idea, and thankfully will never come to fruition. Thank God.

  219. Andy_S

    In an ideal world, we would be able to turn knobs and pull levers to enable the soft-landing as you describe. Unfortunately, one of the consequences of economic shock is slash & burn reactions and tactics that end up helping some, while taking away from others.

    In a normal market correction, devastation and misery would be spread somewhat equally. Of course, in today’s corrupt world, unless you’re a member of an influential and/or vocal special interest group with $$ backing, you’re not likely to receive a whole lot of equality, save for the misery portion. It never ends up ‘fair’.

    We’re in the midst of a severe market transition at this stage in history. Notice how I use the word ‘transition’, not ‘correction’. It is not only a transition from inflated housing values back to a mean, it is more importantly a transition from a socio-economic paradigm (30 years roughly) of borrowing & spending, to frugality, saving & producing.

    Severe transitions out of a 30 year cycle don’t happen smoothly, if they ever did at all. When we hear the term ‘credit crisis’, we need to understand that it is primarily a crisis of Spending and Debt. That spending and debt cuts a swath that encompasses much more than the housing bubble, although the housing bubble did much to turbo-charge the slide into debt-slavery.

    It is a crisis that involves nearly everyone, save for the few who adhered to a couple of timeless admonishments from their parents of years past:

    – ‘If it looks to good to be true, it probably is’

    – ‘Save first, spend later’

    Peace –

    C.C.

  220. My father built the house, that my mother still lives in, in 1950 for $15,000.

    At one point a while back, they were offered $1 mil. for the 6 room ranch on 10,000 sq. ft. lot with a water view.

    Presuming a 6% rate of inflation for the past 58 years (I’m taking a guess but I think I’m close), the house should be worth, if values rise with inflation, $466,806. The current assessment is $482,800. Pretty close.

    Prices overshoot and undershoot all the time.

    What was the $1 mil bid? – lunacy in a bubble.

  221. “…but I am an economics major and very involved in the industry…”

    Class, here is today’s lesson:

    “PrinciPAL reduction” is when the bank reduces the loan principal, thereby making the borrower an instant lottery winner. Just remember the useful mnemonic: the bank is your “PAL” when it gives you a “princiPAL” reduction.

    But that is not to be confused with:

    “PrinciPLE reduction”, which is what’s required by our society when we decide that “PrinciPAL reductions” are a good thing.

  222. Coast, LOL, that is beautiful. Well played. He might be an econ major, but he’s either only just started his program or should sue his school for filling his head with that Marxist crap. That, or he’s trying to show off the amazing sophistication of knowing that industries are intertwined. Hope he didn’t spend too many sleepless nights studying just to learn that.

  223. Dick , i mean Kevin (really i mean Kevin is a dick)

    He is the only one who knows everything and everyone else is a name that he comes up with…the man became a genius when the internet was invented, typing away and telling everyone how wrong they are….

    Start your own blog Kevin and you can talk to yourself all day long …..i dont think any one in thehistory of the internet has ever got under my skin more than this know it all nobody

  224. Javagold, I just tell it as I see it. If you don’t like it, go play in the street or put your head back in the sand. I cannot imagine what I said that penetrated your thin skin, but I must have called out a disgusting trait or habit that you or someone you like is the epitome of. Grow a pair, wake up.

  225. As long as there is a steady stream of foreclosure properties, housing prices will be depressed. REO’s sell foreclosed properties at a discount to get them off their books. The foreclosure market IS the market right now. In this respect, Kevin is correct. What Kevin does’t want to address or acknowlege, is that the supply of foreclosure properties is far above historical norms. This is skewing the supply of houses upward and causing a downward influence on price. Econ 101. In addition, with mortgage financing restricted (for the most part)to prime credit holders with significant down payments; has reduced the pool of buyers. The low prices would suggest a “buyers” market, but the pool is much smaller than in the recent past. I guess Kevin would argue that we are going back to a previous paradaigm, aka 20% down. I think Stu’s and others point, is that over supply of foreclosure properties is skewing the market down artifically. In other words, prinicpal reductions will reduce the supply of “discount” house on the market. Kevin would argue that this would prevent (or delay) the inevitable attainment of market equilibrium. I think both views are valid, but there are different philosphies at play.

  226. “I know exactly how intertwined everything is. For all those years of excess wealth creation, everything intertwined shared some of the wealth. Now that we’re going through a correction, they’ll share some of the pain.”

    But considerably less pain, for some; aka TARP recipients. And where did the TARP money come from?

  227. Javagold.. you still want a reduction even though not UNDERWATER
    I want to buy a home NOW.. even though I’ve lost my home to forclosure

    can we do that? problem solved today

  228. why not break all the rules since we’re in the great recession! for the good of the country.. I want my home now!

  229. ex owner i am sure you made a decision that was best for you, including living rent free for more than a few months, morally i would think Kevin has a major problem with not paying your mortgage….if you could have afforded to keep paying your mortgage then you should have received a PRINCIPAL REDUCTION as well…..

  230. Javagold,

    “What Kevin does’t want to address or acknowlege, is that the supply of foreclosure properties is far above historical norms. This is skewing the supply of houses upward and causing a downward influence on price.”

    Of course it is. And the fact that housing sales are low and inventories are high means that they’re actually not selling them low enough. As far as the people that are competing with them go, they’re just trying to suck what remaining inflated wealth there still is in the housing bubble. They may not know it, but that’s the reality.

    “The low prices would suggest a “buyers” market, but the pool is much smaller than in the recent past. I guess Kevin would argue that we are going back to a previous paradaigm, aka 20% down”

    They call it a buyer’s market, but I think anybody buying now will get screwed and is believing real estate agent bullshit about “deals”. The banks will release their assets on the market in a way we’ve never seen. Mr. Mortgage has covered this (I believe last October), and the better “deals” will emerge. Still probably a bad idea to buy though. If we go back to 20% down, the market will fall to its knees far worse than what we’ve seen so far. Pray that doesn’t happen.

    “I think Stu’s and others point, is that over supply of foreclosure properties is skewing the market down artifically. In other words, prinicpal reductions will reduce the supply of “discount” house on the market. Kevin would argue that this would prevent (or delay) the inevitable attainment of market equilibrium. I think both views are valid, but there are different philosphies at play.”

    Stu doesn’t understand market fundamentals. Where prices were before the boom, what household GDP has (or has not) done since then, and the absurdity that prices can triple in some regions under these conditions. I’ve provided some links before to highlight how out of line prices are (Mr Mortgage has always been good at pointing this out as well), and Stu cannot quantitatively understand this issue. Or I’ve been ineffective explaining it. He keeps saying “overcorrection”, but we haven’t corrected yet. Check the Case-Shiller S&P graphs, adjusted for inflation. We’ve been off-course for a decade now.

    “ex owner i am sure you made a decision that was best for you, including living rent free for more than a few months, morally i would think Kevin has a major problem with not paying your mortgage…”

    I’ve said before, I don’t blame somebody for making that choice . Fact is that though ex_owner has gone through the *horror* of foreclosure( if that’s the case), he gets is. He’s the exact same as me, and a majority of this country that doesn’t want to see our tax dollars go to pay people’s loans. I’d actually be more pissed about it if I were in his shoes.

  231. I think we all get where Kevin is coming from and this only illustrates just how difficult it will be to implement a solution that will be acceptable to everyone. I have a feeling most people that contribute to this forum with regularity and with sound lucid judgment and common sense, would agree that there has to be help given to the homeowners in some form, very soon. One could view it as akin to a very sick patient that is in dire need of a remedy and opinions from specialists abounding from all directions. Problem is, if the patient doesn’t get the remedy soon enough, the patient dies. I see Kevin’s stance somewhat akin to a Jehovahs Witness stance on giving the patient a blood transfusion, based more on a belief that isn’t connected to whether the patient lives or dies. This doesn’t imply I don’t respect their right to a belief, but sometimes we have to make decisions that ultimately is the least destructive.

  232. For THE record i’ve only lived there with out paying 30 days, as I wasn’t informed how forclosure worked, and I couldn’t leave with myself knowing I’m not paying for it, i couldn’t sleep at night

    I’ve made a decision based on gas at 4.50$/gallon, interest at 8% on my mortage (never been late for 2 years), and credit cards maxed out, on top of that my wife lost her job! and my saving of 80K gone!

    Where is my help?? I did what I thought was right.. I can’t pay? then I need to leave.. so I did.

    I didn’t milk the system, thinking back – I SHOULD HAVE!

    i still paid off cards, and paying everything else up to date! Where’S is my BAILOUT??

    I know pp that have 4 homes.. and still want a bailout! that’s insane and greedy.. and then I hear you NOT underwater.. and still want a bailout.. and then asume I’ve milked/stayed for free .. make me sick!

    not everyone’s like u! and I’m not going down with out a fight.. all get a bailout or none

  233. Kevin, I ask you to please make your points on your own merit and do not put words in my mouth. I never said that we are in an over correction, but implied that is where we are heading without principle reductions which we will have soon enough.

    You still fail to grasp the concept of how this all works, but yet ironically you appear to be bright enough to get it. Things that make you go hmmm.

    When you make comments like this it shows your true ignorance and I mean no disrespect, but I am simply pointing out the obvious. You said “the fact that housing sales are low and inventories are high means that they’re actually not selling them low enough”

    Did you get that from a piece of bazooka joe bubble gum? You really are so naive Kevin. This comment is arguably one of the silliest during this back and fourth that I have seen yet. Their is no correlation that allows for this comment to be anything but pure ignorance on your part. This is not your typical supply and demand market we are in, but rather the worst housing bust in the entire history of our country. Off course their is more inventory than demand, and if prices fell another 10% tomorrow it wont change that. We do not have the capacity or the capital to net this equation out in a standard and logical time of over supply. We do not have the buyers available to absorb the homes nor do we have the funds to allow them to be absorbed even if we did. Econ 101 Kevin!

    I beg you to please take a course or 2 or 3 and then come back and you will find your arguments are in vain and your stance is illogical and naive at best to the current situation we are in as a country. This is not your garden style recession we have had in the past and cannot and will not be deal with in the same manner. We will definitely have principle right downs and very soon they will begin to start. I know it kills you to acknowledge that and you are beside yourself that it will in fact happen, but it is what it is. Your ideals and ideology does not change what will eventually happen and needs to happen to save our country from financial ruin as you would suggest needs to happen.

    I know Kevin that you want to buy a home for $1,000.00 some day, but you must grow up and face the reality that it just isn’t going to happen.

  234. I will write to congress, president, and put a blog out for all the ex-owners that lost!

    or maybe I should max out cards again, stop paying on cars, and take my 100K salary out of California!

    FOLKS, look for updates.. as my new blog site will be within 1 week!

    CONGRESS MUST KNOW OF PP THAT ALREADY LOST, with out of their control!

  235. Stu,

    You also have to factor in expectations. To a large degree, the expectation of the market going forward is for lower prices. The market has not found equilibrium at the current price level. This is rational based on the increasing number of foreclosures. The expectation going forward is more, not less. More supply of discounted properties leading to continued downward pressure on house prices. The law of supply and demand works in ALL markets. You have a disagreement with Kevin on how to best remedy the situation. That doesn’t mean Kevin is wrong about why there continues to be excessive inventory and the resultant downward price pressure.

  236. dee,

    Acording to you, I’m already DEAD

  237. Amazing:

    Client has 1st and 2nd with GMAC/Ditech. She owes around $500,000 combined. They appraised her home at $397,000 and are offering her a $391,000 short refi 30 year fixed rate @ 6.75% using FHA.

    No principal forbearance, a true writedown. A new loan. Her PITI will go down by almost $1,000 per month.

  238. I’ve asked this before, Kevin, so I’ll ask again:

    Are you opposed to a borrower and a lender mutually agreeing to alter the terms of their contract including a reduction in the principal balance of the loan free of government money or mandate?

  239. Jacktar, expectations have already been met to a large degree. In bubble states you can already purchase a home for .40 to .50 on the dollar. How low do you seriously expect home prices to go? Do we crush the entire economy so everyone that doesn’t have a home can buy one for $1,000.00 like Kevin wants and the 70% of current homeowners become renters? So now we have tipped the scales to 30% home ownership and 70% renters? We need to be rational during this transformation and while not rewarding those that gambled, we must preserve those that did not at the same time. Lenders doing principle write downs for home owners is a good thing. No harm to tax payers and no harm to the market. Everybody wins in that scenario… everybody!

    People like Kevin (I don’t mean to pick on him specifically, but he is the only one posting here that clearly doesn’t have a clue) expect something for nothing. He is of the entitlement generation where he deserves and expects something for nothing. Why should he help elders in this country? Why should he look out for the well being of others? From my vast research on humanity as it relates to this subject of something for nothing I would say Kevin is a white male, 25-35 years of age, unmarried, has a decent job, but not great, owes college expenses still today which have prevented him from buying and sees this current situation as a way for him to jump in and pounce on others misfortune. Just saying…

    Off course the continued level of inventory for sale at distressed prices is causing prices to climb lower and that is my point. How low do they go before they become a detriment to the overall economy and society? How low do they go before they cause homelessness and wide scale panic amongst the general public? Is it 50% declines (we are already there in CA), is it 60% or is it 80% declines that will work for Kevin et all? This is not ordinary times and requires extraordinary measures which require a unique approach to keep this from getting totally out of control.

    You must remember a few things during this unprecedented fall in home prices.

    1. We have never experienced this sort of fall before at these levels.

    2. We do not have the lending capacity to absorb the inventory available.

    3. We do not have the level of qualified buyers available to absorb the inventory available.

    4. We have never before as a country had to deal with this sort of situation.

    5. We only know of one time that we can draw on for guidance from past experience.

    6. We know if nothing is done we will fall into total chaos (I have pointed those out already).

    7. We know homes will not fall to $1,000.00 as Kevin would like to see in his infinite school boy wisdom.

    8. We know that Principle write downs are on there way.

    9. We know that our Government for all of its faults will not allow for mass chaos in housing to allow people like Kevin to buy a home on the cheap.

    These things we know to be true… all of them!!!

  240. Uh, Stu, I beg to differ on some of your statements specifically on economics as your views are getting way out there in regards to what I know about economics when I went to school. First, your exact words.

    1. “This is not your typical supply and demand market we are in, but rather the worst housing bust in the entire history of our country.”

    While I won’t argue with you about it being a really bad “bust”, typical or atypical, it’s still supply and demand. As an economics major you should know that.

    2. “We do not have the capacity or the capital to net this equation out in a standard and logical time of over supply”.
    Lots of assumptions here, I think you are taking too many things for granted that might not prove to be true.

    3. “We do not have the buyers available to absorb the homes nor do we have the funds to allow them to be absorbed even if we did. Econ 101 Kevin!”
    This is a false statement. At the right price point the buyers with credit will step up and be available to absorb excess inventory.

    Maybe Kevin mistakenly assumed your words on “over correction”, as you mentioned them over 4 times in quick succession but I get the feeling that a number of people still think this 30% drop is the correction and another 10% drop will be the over correction. If you beleive that to be true and since you are an economics major, I’d like you to explain with historical evidence how that assumption is correct.

    When I look at historical evidence, I see the runup beyond inflation beginning in 1998 and peaking in 2006-7. Under the current correction I see the drop to around 2003-4 prices. For an over-correction as seen after the bubbles of the late 70’s and 80’s you would have to hit 1997 prices on home’s and we sure aren’t there yet but in my opinion we will be. (Actually the 80’s bubble did not overcorrect when it burst). Its easy to look this data up and I’m sure some blogs specialize in going over this stuff.

    I think you are also putting a little to much faith in the assumption that they are going to give principle reductions. As this long list of comments should show you, there are a lot of differing opinions on this topic. Imagine how it will be in Congress?

  241. “He is of the entitlement generation where he deserves and expects something for nothing.”

    Kevin’s posted a lot of things, and not always tactfully or diplomatically, but the above statement is an unfair characterization. Kevin doesn’t want the government to give anything to anyone, himself included. You can question his motives for wanting the market to decline (because he stated he does not own real estate at this time) but he has never stated or implied that he expects or deserves anything. His mantra has consistently been, “You signed the contract, honor it”.

    “How low do they go before they become a detriment to the overall economy and society?”

    The market will bottom when supply and demand are equilibrium. Current indicators suggest we are not there yet. The oil market has experienced extremely volatile price movements over the past year as new data emerged and expectations adjusted. Demand changed radically (based on expectations of the future” and price followed (up AND down).

  242. KurtA, fair enough so lets see if I can answer some of your questions…

    1. I disagree totally with your statement that this is a typical supply / demand situation. This is anything but that and in fact it is the largest contradiction to the norm that this country has ever experienced. As an economic student you should realize this, and if your professor is worth his salt he would explain this to you. We are in unprecedented times and require unprecedented measures. Without holding class here supply and demand does not equate to what we are experiencing as a county right now. All that logic has been tossed aside for an unprecedented decline and capital crunch like never before witnessed in this country or anywhere for that matter.

    2. If you think for a moment that lenders have the capital capacity to dole out loans at the pace it would take to consume the vast amounts of inventory available and that even if they did there are enough buyers that would qualify to take those loans you are delusional. What part of a recession are you not getting?

    3. Buyers don’t have credit, but rather the lenders do. That is the point here. There are not nearly enough lenders with the available capital to support buyers even if we had enough to absorb inventory, which we do not. When lending tightens as it has, it forces buyers to have free capital to plunk down, hence the saying cash is king. We currently have near record inventory available of homes for sale (11.2 months or so vs. the record of 11.7 or so). In your scenario (and Kevin’s) this should be enough to allow huge buying opportunities to consume this excess over hang of inventory. That is not happening, so why is that? It is because the consumer is not in a financial position to do so. Also the lenders are not in a position to do so. Where are we then? The “right” price you refer to is the economically right price that lenders and buyers agree on and their is the rub so to speak. We are a long way from that point and further more from that point being a viable option for lenders and buyers to agree upon.

    The historical evidence suggest first of all that this is unprecedented in nature. Secondly, as a result of that historical means are required to deal with it. Home values historically rise along with inflation at 2%-4% and that has been blown away in this run up. The 80’s bubble which I experienced, and lost money in, is so much different than this bust which is obvious to me and anyone that experienced it.

    Principle reductions are the ONLY answer to contain catastrophe for this county and they will happen. I am not over reacting to that. The play is already in the cards via congress. The bill is already put together for passage and will be passed soon enough. This is not my desire, but simply a fact. We will have them soon enough and there is nothing that will change that fact from happening. Anyone that thinks differently is simply not paying attention. As I have said time and time again, whether through lenders own admission or cram downs by judges it is here and soon enough will be a reality. In my opinion a necessary and good thing for this country for now. Not the best case scenario rest assured, but it is what it is. We placed ourselves into this predicament so no we are just doing the best thing possible to help get us out from under it long term

    You can all say what you want about my post and disagree and such, but I am telling you that it is going to happen regardless. Embrace it and work to get this country right or fight it and add to the recklessness that has already occurred. If you want yours like Kevin then move to China or something. Your attempts at robbing this country of its stability are ill advised from where I sit and from what I see and hear. As much of you Kevin’s hope and suggest for your own personal gain at the expense of the masses you will be totally disappointed in the end because it just isn’t going to happen for the good of the masses. Sorry if your not the primary concern, but I have a feeling you will get over it…

  243. Shouldn’t you all read and respect what MM wants from this thread?

  244. You can’t blame anyone for wanting to lighten the blow but in this case I truely beleive that by telling the truth and finding the true value of homes, especially in the bubble states, we will shorten this recession from a 10 year period to a 2-3 year period.

    What I like about this blog is that it exposes the truth about what caused this problem. I think that it should continue to expose what is going on so that we can find a true bottom to this mess sooner rather then later.

    IMHO the true delusion is that we are going to be bailed out. Lots of people beleive this all the way from banks to your average homeowner. They are all doing their best to hold on to their bad loans in the hope that our gov’t will come along and fix things.

    Look at the REO’s out there. Everyone knows there is a lot but when you get down to the street level you would be surprised at how many have been hidden. The first thing most real estate agents do when a bank gives them an REO is go into Zillow and clean out the sales and tax history. Admitably this is weak but it keeps the average house buyer from finding out until the RE agent tells them that the house they wanted, (if the agent worked his magic) is an REO. The biggest problem is when they pull it off the MLS altogether. They know nobody will buy the house at their bubble price. All they are doing is taking it off the REO record, (to still hold the bubble price line at 2003-4) and wait for the day the “manna” comes from the gov’t. Will that help come? Who knows, but the banks think its worth a shot.

    Those wanting principle reductions will never be able to force them on banks by gov’t mandate. Principle reductions for homeowners to the level you are looking for will only come when banks are faced with the possiblity that prices will fall to 1998 levels. Then start watching them call all those homeowners with their 2004 priced principle reductions. Of course by then there will be a group of homeowners wanting principle reductions to 1998 prices to save them from catastrophy. Thats the way it is with banks, to little too late.

  245. Stu,

    There is no shortage of $$$ from lenders. They are not in the business of lending to people who want exotic products anymore but if a buyer has a good FICO and 20% down and enough income to make the monthly payment, he’ll have no trouble getting a loan.

    I suspect that the main reason that houses are not selling is that people think that they will be cheaper next week, next month, next year.

    People don’t like to buy something that they feel will be worth less later.

    You can keep hoping for principle reduction (with gov. $$$) but I fear you might be disappointed. Last month I had an in depth discussion with Barney Frank’s office. I was advocating silent liens attached to the homes that get mods so that our communities could stay stable and people could get past the horrible economy we have now. I would bet that before we see any government money spent on prin. reduction, we’d see that money used to buy the house and give it to HUD as low income property.

  246. I’m with you all the way on this one Kevin.

    Stu, I think you have lost all perspective by turning this into some sort of moral obligation argument to help out underwater debtors. All of these “poor homeowners” with $450,000 Option ARM loans are not worthy of my hard-earned and hard-saved tax dollars to keep them in homes that they should not have bought in the first place. Nothing prevents them from walking non-recourse and renting for the next 15 years. THEY WILL NOT GO HOMELESS – THIS IS NOT A NATURAL DISASTER OF BIBLICAL PROPORTIONS!!

  247. Mr. M –

    As a mortgage broker, we were appraoched by numerous firms promising us commissions galore for referring our clients to them. We decided to keep things in-house and treat our clients with respect and dignity.

    We decided that charging them up-front was not the way we do things so we act on a handshake (and a contract) and only get paid for production. It is not necessarily the “smart” way, but certainly honorable.

    What we have found is that it has not been the loan structure that has people in trouble, rather it has been the loss/reduction of income that is the primary culprit in people falling behind on their mortgages.

    Lately, as predicted in one of your previous posts, people who have been declined for refinances due to LTV problems have now determined that they deserve a modification. We’re also being approached by numerous investors who took out pay-option ARMs on rental properties and are getting killed on resets/recasts.

    Our experience with lenders has been that they are disingenous to say the least. Lenders seem to prey upon the ignorance of borrowers who are behind and ignorant of their rights as well as the terms of their loans. They can’t seem to understand why a borrower would want to use a third party to help and hold us in contempt that we would get paid for what we are trying to do.

    Our success rate has been what we would consider to be mediocre in that the lenders have a take it or leave it attitude, with their proposals being less than satisfactory. Almost 100% of the time we get the lenders to provide us with some sort of “approval”. However, we define success as something that is sustainable and fits within the parameters of the borrower’s priorities. Most approvals are not what we would consider sustainable, but rather short term fixes that will ultimately leave the borrowers worse off than where they are at the present time. Lenders have forgotten – or have no idea – that there are two sides to a borrower’s financial statement.

    We always provide lenders with a cover sheet that explains why the borrower is requesting a mod, discusses their hardship, and provides a realistic solution using rate, term, and principal in that order.

    When we ask lenders if they utilize the IndyMac Protocol or the FNMA/FDMC guidelines they have no idea what we are talking about. It is probably easier to get the Coca Cola formula rather than have a lender tell you how they underwrite for mods.

    The bottom line is that lenders don’t want to help. Their main priority is to bring the loan current. For instance: we were just told that a particular borrower would need to make their mortgage payment and keep it current during the 60 to 90 days that that the lender would use to determine whether to accept the borrower’s request for modification. We pointed out that accomplishing that feat would demonstrate that the borrower would most likely NOT need a modifcation.

    Getting past the collection department and into the loss mitigation department is the biggest challenge. All phone lines lead back to collection via “customer service” which invariably leads one to India.

  248. Hello all:

    Before I state my plan, lets see if we can agreed on some responses:

    Purchasing a home is both a long termed “investment” of an “asset/home” as a place to live and raise your family. The majority still feel that way.

    Since purchasing a home is more expensive monthly than renting, your government gave the homeowner some benefits to induce ownership, tax deductions of mortgage interest and real estate taxes, capital gains, etc. to offset the increased monthly expense.(candy)

    They also gave homeowners the ability to borrow the entire purchase price minus an acceptable down payment (considered to be the borrowers personal equity stake) to be repaid over a fixed time period, usually 30 years.

    Purchasing a home, was never supposed to be considered a risk or gamble, since the government itself (and lenders) had a program that allowed for less than 2.25% as a down payment with their FHA financing and 100% with the VA financing (direct benefit to the Veteran).

    Translation is that the government and all the great financial minds themselves, expected real estate to never go down. I as well as everyone understands fluctuations of 1,2,even 5% but as time goes on and the mortgage is paid down, these minor fluctuations aren’t realized normally by most homeowners. The prior average time for a homeowner to be able to “move up” was 7-10 years.

    Mortgages are issued with the expectation that the collateral of the asset/home’s ability to retain their value if it had to be foreclosed and resold with NO or mimimum financial loss to the holder of said mortgage.

    The above statement was the mindset of the government and Wall Street and its investors, or realistically speaking no mortgages would have been issued, why shouldn’t it be the mindset of the homeowners as well?

    The issuance of mortgages is a business and it was a VERY good business.

    Capitalism is a businesses goal for the profits to exceed any possible losses.

    The lax lending standards and liberal mortgage programs introduced to housing had the ability to create a massive number of ” qualified borrowers” to demand the right to homeownership.

    Keyword here- is qualified by the lender who is the professional of the industry in question. Mortgages were sold to the public were based on 50% of the monthly gross income qualified the borrower for “the” payment. This alone increased the risk of defaulting drastically.

    The increased and continuing demand for houses allowed homeowners to raise their prices almost monthly for what “most” considered a normal supply and demand theory, not a “bubble”. Individuals, sellers and buyers, never got to see more than what they could see with their own eyes in their own backyard so to speak, nor should they care it was not their business.

    The reason for the introduction of special programs, teaser rates, option arms and lax underwriting was for MORE MONEY or profits that could be earned by Wall Street and its investors, capitalism at work.

    I will state that I don’t believe it was done with any intention of harm to any particular group but was a poor business decision of financial experts including our government, who had the opportunity to review the entire picture, but greed pure and simple was evident. The “gamblers” risk taking philosphy of my luck is not going to change yet, or why should I be the only one not making oodles of money were definately there.

    Everyone now knows of the mechanics of the “bubble” , while we all were (or not) smart in getting involved with over inflated prices, some executives were earning millions to perpetrate this upward cycle of housing values and even the downwards cycle too.

    When the first special products, sub-prime (2004), first started to go belly up, the lenders pulled back rather slowly, within 2 years, first on adding requirements to the underwriting, then stopping the issuance of these products entirely.

    This called a halt to the over supply of qualified borrowers stopping homeowners from increasing their prices anymore (2005-2006).(which I personally feel is a good thing)

    BUT at the same time, since prices weren’t increasing anymore, those homeowners who purchase with adjustables(or speculators) that were looking to refinance or sell were effectively left with no where to go, except be foreclosed on. (The earliest sub-prime homeowners were able to refinance or sell, depending on time of purchase, whether they were speculators or not)

    As stated above by so many of you, the foreclosed properties became REO’s and were discounted under the averaged market price at the time, to be sold quicker. These sales lowered the value of the area, since closed sales is what is considered fair market value.

    The housing industry is now what is called a deflationary cycle. Defaults, lead to foreclosures, which lead to REO’s, to be sold before homeowners the REO’s are discounted under the market at the time, which lowers the market value, which make more homeowners in negative equity NO Matter what type of mortgage they took, and more homeowners adjustables are resetting , which leads to more defaults, …..

    You get the picture. But realistically whose fault is it again?

    I also totally agree that because of the lenders programs housing prices went out of the median range of most income’s. Notice that I didnt just state new borrowers, but current borrowers as well. The housing segment accounts for 69% of the USA’s population.

    My plan is the “financial mortgage consumer protection plan for all underwater owner occupied homeowners mortgages to be principal reduced to the current market value as of 1/1/09″. These mortgages are defective due to the actions of the lenders and investors themselves, as shown above.

    The reduction is absorbed by the lenders and/or investors and all previously issued guarantees and bail outs by taxpayers will be revoked, to ensure the continuity of capitalism in the USA.

    There are guidelines to the plan. Yes, some banks will fail, but not all.There are benefits as guidelines for them as well.

    It will not increase our national debt to be left for our grandchildren as the “1” round of bail out does.( there will be more to come)

    It will stablize the housing market and there will be acknowledgement of the current reduced values for existing and potential homeowners as well, since the reductions are recorded.

    I am sure some of you will dislike the idea on “principle” that you are not receiving a correction or recall of said product.

    Just some of the guidelines to ward off the negative responses:

    1-homeowners who are deliquent and purchased a property that they never could have qualified at legally, even with the principal reduction, aren’t eligible. They should have remained renters, they will be foreclosed on. All deliquent homeowners will have to prove verification of income within accepted ratios to qualify for the principal reduction.

    2-homeowners who are current on their payments will recieve a principal reduction based on the appraised value of the area to 100% loan to value.

    No homeowner can refinance or sell the property for ANY profit for 5 years mimumum.(and if any of you think that the market is coming back it won’t, this is a direct response to Barney Frank and CC)

    For any homeowner, if after receiving a principal reduction, foreclosure occurs for any reason, the homeowner is excluded from being able to obtain another mortgage for a period of 10 yrs from date of foreclosure.(personal accountability is being instilled , the same as corporate accountability)

    The foreclosed properties can be purchased for the reduced market value by the public. If the public does not purchase the foreclosed property, the government will purchase it (at a small discount) to auction off with a subsity/partial grant that is forgiven after 10 years at the “reduced market value” for new potential homeowners to further stablize homes.

    And in response to the question of do I expect a reduction, the answer is NO.

    Nor, do I expect to be disrepected, as shown in the above post to other posters by name calling. Lets remember we all have an opinion as intelligent adults, but the majority SHOULD have the biggest say in what is actually done.

    If there is no majority, the government will continue to benefit Wall Street not Main Street with our tax dollars, while our economy heads for a depression.

  249. Susan,

    I like your plan in principle and I’m sure there is a lot more detail to it as some of the changes you expect to make are going to be BIG changes in the way our laws currently work. Some things come to mind.

    You mention, ‘some banks will fail’, if that bank is owned by the gov’t under a bailout then you can make them do this program although I don’t think the employees will be too thrilled about it.

    Now if this bank isn’t owned by the gov’t, what power under our current free market system, gives our gov’t the right to mandate this proposal to a lender if it might make him fail? I’m not sure what kind of benifits you could offer to a failed company.

    Also you’ve locked this into 1/1/09. And you also want to let the true failed borrowers fail.

    I don’t know the numbers on true unqualified buyers but it might be very high. If that is true then you have fewer REO’s hitting the streets but still enough will be out there that you will still face additional price drops. With a bad recession ongoing I’m still afraid you will see the prices drop, (slower) to the exact same point the market correction will require.

    10 year forclosure exclusion, 5 year profit exclusion you can probably mandate as we are in a panic right now but even then the debate will literally take forever to change some of these laws as they have been on the books for decades.

    Stu,

    Wow, you must have lost a lot of skin in the housing market.

    There is no “typical” supply and demand, its supply and demand, period.

    I’m not a student but sometime students ask me a lot of questions like how could you Americans be so crazy to invest like that for so many years. I do live in China though, Beijing to be exact and I’ve taken a lot of kidding for U.S. lifestyles that got us where we are today.

    Of course I’m looking at a bubble in China also that is just popping and I had a pretty close look at the Japanese bubble over the years.

    Sometimes the reasons for a bubble change but when they develop, (and they always do), they always pop and fall back to old levels pre bubble. Sometimes they over correct but it’s hard to say on this one. All these fixes might slow things down, aka Japan’s solution but you alway get back to that inflation adjusted line again.

  250. In re-reading the post, I found that my plan addressed most of the “compliants”:

    moral hazard is avoided, homeowners who are current receive a better rate than deliquent homeowners not as good as renters or F & C homeowners but still better than homeowners who are deliquent.

    There is an unspoken penalty for ANY homeowner accepting a principal reduction. The mortgage goes back to a 30 year term regardless of when they bought the house. (they paid the mortgage holder X amount of dollars for X amount of months with no benefits whatsoever, (THEY LOSE-that is fair because I was smarter than to buy during the bubble years, waiting for prices to come down, except in the ONE depression when did prices come down to absolute less than affordability–but with my plan or a similiar one, it encourages them to remain and take the lower mortgage payment at the reduced principal balance for their family because of the ensurance of stability. Affordabilty and no negative equity, the major two reasons of why foreclosures occur is deleted.

    The plan cost the banks/investors to take the equity reductions and still leave the home owner in 100% equity situations.

    To do my plan, it doesn’t cost the taxpayer anything except letting the free market (capitalism) work protecting 69% of the population. No homeowners mortgage will be over 100% of the APPRAISED value.

    The agreed upon penalty is there is no profits realized for at least 5 or even 10 years making renters feel better. Like Kevin, I believe in calling a spade a spade. What does it matter that it takes a government mandate to reduce principal mortgage to conform to appraised values, unless you were hoping that the 31% of the population became the majority at the expense of not only the majority but the cost of capitalism?

  251. Susan,

    No I do not hope the needs of the minority debtors are satisfied at the expense of the majority. I don’t want to see capitalism undermined either as it seems I have to defend in daily where I live.

    I just see a constitutional challenge from solvent banks, (they have entire law firms on retainer), to government efforts to mandate them to adjust their principle on loans to the point of their insolvency. At this point we can’t even make the problem banks loan homeowners the money we gave them, (through TARP), to stay afloat.

  252. Susan,

    That is a very noble proposal.

    But one of the main questions we all have been dancing around here in this thread is:

    Who is going to pay for all this? Who really takes the hit?

    If you ask (coerce?) a private bank to take a hit, why would they agree? I think this might be a slippery slope because it would mess with contract law and the government (they are the only power who could make this happen) would be basically running the banks that they have already funded.

    If we say, “they have to do it because we gave them the money to do it (TARP)” then you are saying that the mortgage reduction is basically a government program and every taxpayer in the country is going to pay.

    Another question: What happens to the amount that is reduced? Does it just disappear? Sounds what used to happen in South American dictatorships. When the old dictator was overthrown the new guy tore up all the promissory notes. (A lot of our mortgages are owned by people in other countries.) Very quickly foreign investors pulled out or demanded 50% interest and guarantees. When that happened to those countries, unemployment went through the roof and just about everyone became poor overnight.

    Finally, if you draw a 1/1/09 line in the appraisal sand, what is going to stop values from dropping during 2009, 2010, etc.? And if someone has a mortgage at 100% of value, do they not have “no skin in the game”? And if you take away the ability to make a profit, with no skin in the game, and values drop another 20%, wouldn’t it be easier than today to walk away?

  253. KurtA, I have not lost a penny in this market, and in fact I actually made a lot of money selling and downsizing in 2004.

    When I refer to “Typical” it is in reference to the absorption ratio. That ratio is way out of line with “Typical” supply / demand scenarios due to the tightening of capital. You are correct however that there is no “typical” supply and demand because it is what it is. To help explain myself look at an assembly line for example. When products are not selling, due to them being over bought, the inventory increases. You slow down the assembly lines, which allows for the excess inventory to be sold off and then you are back where you started.

    Today we are in such a unique situation that we can not possibly absorb the inventory even if we shut the assemply plant down. If a single home was not built for all of 2009 we would still have an abundance of available inventory out there that could not possibly be absorbed. We do not have enough people that want to buy with enough cash and / or enough lenders with enough cash to lend, to absorb the massive amounts of inventory that is available today. Remember that demand must be true demand and not desired demand. Sure most everyone wants to own a home, but the demand must be real in terms of ability. This is commonly referred to as “pent” up demand or money on the sidelines waiting to jump in. We certainly have some of that, but nowhere near the level needed to straighten this situation out.

    I have never been to China, but I would love to go sometime. Your culture is extremely interesting to me and I laughed when you said: “how could you Americans be so crazy to invest like that for so many years” because I have been asking the same question my self for years now. I do agree with you that China has its very own bubble about to burst and as millions leave for their homelands from big cities where they were chasing dreams of prosperity it will rear its ugly head in a hurry.

    P.S. I do apologize if that comment about China offended you, but my ire was up.

    Kevin, I also apologize if I offended you as well. You do know how to push buttons however. This issue is very near and dear to me and I deal with it each and every day of my life. I get very frustrated when people just say let it all fall apart and we will be fine. That is just not realistic with housing in the state we are now in. In terms of the Auto industries going bankrupt it does work, because that is an industry and they are protected as a whole through bankruptcy. These are individual homes and people we are dealing with and not an industry. A different approach is required to deal with this unique set of circumstances of a once in our lifetime event.

    Susan, I love your post and your ideas are exactly what I refer to. You say it better and with much less frustration than I do. I do not mind a good debate and you are very level headed and intelligent in your approach to things. That is not because I happen to agree with you, but rather because you see things for what they are and as a result you are looking for solutions to resolve things. You are one of only a handful that has done that, much like my self, and it is rather refreshing to see. We will work through all of this at some point and I do believe we will be a better country for it in the end. Lessons learned are vital to preventing future failures.

  254. “I’ve asked this before, Kevin, so I’ll ask again: Are you opposed to a borrower and a lender mutually agreeing to alter the terms of their contract including a reduction in the principal balance of the loan free of government money or mandate?”

    No, but in almost all cases the banks aren’t doing this. If they started doing this because of the govt’s TARP program, where our tax dollars will in essence subsidize the loans, I am vehemently against it. I’m only just now warming up to the notion that because of their poor judgment, these people get sweet deals already with their modified loans, low interest, etc. Then to go and hear them bitch about how deferring portions of the loans isn’t what they wanted, that they cannot profit in the end because they’re not given a jackpot of cash, I just want to slap the bastards.

    “I get very frustrated when people just say let it all fall apart and we will be fine. That is just not realistic with housing in the state we are now in.”

    Perhaps, but I don’t think it’s realistic that there is any way to fix it. There are ways to try, which cost trillions of dollars and reward those who created the mess, but for practical, fiscal, and moral reasons I’m very much against the “plan” floated around by some here.

    And no, I’m not priced out of the market. I’m just not going to get back in when I’m sure whatever I buy will lose another 30% in value. Nor do I have any delusions about making myself house-poor just to be able to sell for a profit.

  255. “I have a feeling most people that contribute to this forum with regularity and with sound lucid judgment and common sense, would agree that there has to be help given to the homeowners in some form, very soon.”

    I don’t. They made their agreements, nobody forced them into their expensive houses. They can just stop paying if things get tough, live for free for months. Then they can walk away from the debt without recourse. Pretty good deal if you ask me.

  256. Stu – “I disagree totally with your statement that this is a typical supply / demand situation. This is anything but that and in fact it is the largest contradiction to the norm that this country has ever experienced. As an economic student you should realize this, and if your professor is worth his salt he would explain this to you. We are in unprecedented times and require unprecedented measures. Without holding class here supply and demand does not equate to what we are experiencing as a county right now. All that logic has been tossed aside for an unprecedented decline and capital crunch like never before witnessed in this country or anywhere for that matter.”

    Okay, you took a couple slaps at me on econ issues – you’re obviously the real genius – and keep lecturing me that I don’t know what I’m talking about, so let’s just hash this out real quickly:

    1. I said you don’t understand the housing bubble, and you’re only reinforcing that perception. Certain counties where I live had housing values shoot up to three times their initial worth from 1998 to 2006, some even adjusted for inflation. This is an obvious market correction and would happen in one form or another. I believe the sooner the better. People want to see the bottom of the market, and they want growth. In your econ classes did you ever research Japan’s housing bust? Took them seventeen years to find the bottom, and the pain was spread through several generations.

    2. Stop saying this isn’t typical supply/demand. No offense, but if you are some second year undergrad, you are talking about a market you know nothing about. It is entirely supply and demand. Lending restrictions loosened during the bubble, housing prices soared as all of a sudden a guy that could only afford a $300k house could now buy a $1m house. In 2007, lending restrictions tightened, and prices fell like a rock. The mere fact that housing prices are sticky and you can literally watch these changes happen as the pool of potential buyers is expanding or contracting pretty much gives absolute validity to the supply/demand theory playing out here. But you never said why this isn’t typical supply and demand, only that it’s unprecedented. I would expect an econ major to be more sophisticated than that.

  257. Kevin, can we please have a truce on the snide comments.

    1. Yes, but Japan’s issue was more on how they addressed it and not the bust itself. The same thing happened during the great depression in this country as well and that also lasted over a decade. The exact same thing is playing out again today in this country, and if not dealt with correctly, as I said in an earlier post, it may take until roughly 2020 for us to be stable again as a country.

    2. We must agree to disagree here because this is not your “typical” supply / demand scenario playing out. It is and always will be about supply / demand I agree, but this is not typical because of many reasons. Government intervention has not allowed markets to move in accordance with free market fundamentals. The freezing of capital (an abundance of reasons has caused this) that we have had, and are still experiencing is not at all normal. I will ask you a series of question to make my point of this not being typical times and hence not your normal supply / demand scenario playing out. If it was, the issue would have been addressed already and we would be on the road to recovery.

    There are hard fast and true methods one would typically implore to address the situation of a demand shortage or supply shortage that is causing problems. They will not work in this case so we must think outside of the box to address the problem. Let’s look at what has happened in just a very short period of time to help explain why something needs to be done other than what we would normally do to address a typical supply / demand scenario.

    1. Housing permit figures broke all time record lows in 2008.
    2. Housing start figures broke all time record lows in 2008.
    3. Home price drops broke all time record highs in 2008.
    4. Home inventory levels broke all time record highs in 2008.
    5. Manufactured goods inventories broke all time record highs in 2008.
    6. Budget shortfalls by states broke all time record highs in 2008.
    7. Builder confidence index broke all time record lows in 2008.
    8. Consumer confidence index broke all time record lows in 2008.
    9. Short term interest rates broke all time record lows in 2008.
    10. Foreclosures broke all time record highs in 2008.

    I could keep on going because there is an abundance of figures that set records this past year. I do not consider this “Typical” and therefore the supply / demand situation that has resulted from many of these records is not your “typical” scenario playing out. That is all I am saying Kevin. So as a result of this we need to address the situation differently than we normally would, under what would be a “typical” scenario playing out. Again it is always about supply and demand and that is a fact, I totally agree with you on that, but how we address it is where we must agree to disagree.

  258. “Kevin, can we please have a truce on the snide comments.”

    Sure

    “1. Yes, but Japan’s issue was more on how they addressed it and not the bust itself. ”

    They tried propping up the market there. That prolonged it and everybody kept buying, thinking they were at the bottom. And because they have a thing there called “honor”, they couldn’t just walk away from their houses. Their mortgages were passed on to their children and grandchildren. It’s hard not to have disgust with americans wanting principal reductions because they’re not profiting when you have millions of Japanese paying sixty year mortgages, honoring their debts and their parents debts. They would sooner pull Seppuku than have a principal reduction. Because they have more dignity than we could ever wish to have.

    “The exact same thing is playing out again today in this country, and if not dealt with correctly, as I said in an earlier post, it may take until roughly 2020 for us to be stable again as a country.”

    We stabilize when we bottom out. A small fraction of the country will be under water for some time after that, but that was their decision to buy in the bubble and not walk away. As with the Japan remark above, that is honorable. Meanwhile everybody else will be renting and saving, or owning houses they can afford – and saving. That is stabilization, and it cannot be forced.

    Fair enough on the supply/demand, and I agree that the replenishment of inventory from banks keeps it high. But I think there are a lot of houses not on the market because people are foolishly “waiting it out”, or can’t sell. And, if prices were to fall, more people could afford the houses and scoop them off the market. Call it 30 cents on the dollar, but if that’s what it takes to sell, then it’s the real market value.

    And all of the all-time record highs and lows pointed out there is of course not typical at all. This entire crash has never happened before – not at this scale at least. But the reverse of all of these things were in the runup of the bubble. Record increases, record construction, etc. Which is why I say it was very easy to predict this was going to happen, but people don’t listen to the warning cries when some two-bit real estate agent whispers in their ear “houses always go up”.

    I personally met several people – middle class, young, and well-off – that bragged in summer 2006 about how their new house or condo was going to make them wealthy. Once a girl said exactly “I’m going to be rich” in such an obnoxious tone that I had to correct her, politely, on the spot. She didn’t like that, but I was only trying to caution her not to be greedy, and of course what I warned of came true in spades.

    “Again it is always about supply and demand and that is a fact, I totally agree with you on that, but how we address it is where we must agree to disagree.”

    Okay, just know that my moral outrage over yours or Mr Mortgage’s “ideas” can be at least tempered or abated if I think there is any merit to the plan, or that it would be a net benefit. I’ve heard nothing convincing so far, except that of course more equity keeps people in houses and keeps the economy strong. Sure, but why not just give everybody that money instead of just those who bought too much? Surely the more people it’s given to, the better the impact.

    If you cannot already tell, I’m sort of old-school capitalist, believe in responsibility and honoring one’s debt, and really abhor large gov’t bailouts of all kind. Even in the most far left European countries they don’t do bailouts. Like somebody said above, it takes a sort of communist revolution to achieve that.

  259. OK Kevin, then I will take a stab at tempering your moral outrage. I cannot speak for Mr. M. but I do agree with everything he has said in regards to principle reductions. I don’t think I can get you to believe in principle reductions, but I do believe I can make a damn good case for them that you will agree with. We shall see…
    Problem – We have laws that allow people to walk away from their home with no penalty other than some social stigma and a credit rating ping that gets lifted in approximately 3-4 years if you don’t do anything else that would negatively affect it during this time frame.
    Risk – The potential that hundreds of thousands of people may walk if it makes financial sense to do so exist.
    Knowledge – The situation we see taking shape in CA for example has proven that people’s willingness to walk is very real. We know this because of a few developments that have taken place. The levels of people who have utilized the various programs being offered to get themselves financially stable to be able to afford their mortgages again are quite small. The amount of continued foreclosures is quite massive and shows no signs of letting up. Companies have actually been born out of the ever increasing willingness to walk away, and they are proving to be successful, and profitable businesses. This is proving that the risk does exist, so there is now valid reason for concern.
    Failed attempts to temper the risk – We have proof that all of the programs to date are not viable options to mitigate the risk of people willing to walk away. In fact due to the large number of people, and in a very short period of time, who re-default after using these various programs, one could argue that they are causing even more people to walk away. As many others witness the failures of these programs it is having the effect of fewer and fewer people even making an attempt to try them out for fair of eventual failure anyway and the sheer cost they incur as a result.
    Dilemma – As a result of the massive wave of defaults it is placing a strain on lenders balance sheets. Lenders are then forced to absorb these losses and must build reserves to accommodate for them and future losses. They are also raising their L3 asset levels out of a need to preserve what little capital they have left from being part of those reserves. This is causing a lack of available funds for loans to people to purchase homes, businesses to get funding, people to get school loans, buy cars and the list goes on. As a result we are seeing a credit squeeze develop which is paralyzing our nation’s ability to function smoothly. We know this by looking at car sales, home sales, retail sales, business failures etc. Businesses have to borrow short term to stay in business due to A/R lags and as a result cash needs. Students need to borrow for college until they earn their degrees and are then able to get a job to pay them back. Cars break down and people need loans to purchase vehicles to get to work. People’s every day lives are being tossed into turmoil. These are not your over leveraged, rich seeking, risk taking folks that are getting crushed in housing, but rather every day folks just trying to live their modest lives. As a result of not having access to money for every day life, normal sales have stalled and that is forcing job losses. This cycle is repeating itself over and over causing millions to lose their homes, jobs, stop college, etc. and that is harming the over all economy and preventing it from functioning. That in turn has caused a massive recession to occur and quite possibility some say may cause an eventual depression to develop.
    Government response – Out of need to add liquidity to allow for a normal operation of things for these every day folks the Government asked for a $700 Billion dollar bailout. Much of that money was improperly handed out to rescue Fannie, Freddie, Auto Manufacturers, AIG, etc. They also threw money at lenders and asked them to please lend it out. Not to reignite the bubble, but to allow for these basic financial needs to be met and for society to operate smoothly again. They failed to make mandates on the lenders and gave the Fed too much power to do what they wanted so the money got squandered for other things like debt and acquisitions. No help came to the markets as a result of this and now we are in even worse shape than we were, but with a massive budget deficit that the tax payers have yet to pay for.
    Situation – Now we have Obama seeking up to $1 Trillion to add jobs that have been lost and to get things moving and functioning normally again. This does not address the root cause for the disruptions however. This will only further increase our budget deficit and add even more money that the tax payers will have to eventually pay for. Money we do not have and won’t if this continues. Furthermore we see no let up at all in the economic slide this country continues to face. We also have done nothing to mitigate the risk of people’s willingness to walk away. This will only exacerbate the problem further as we move along into 2009 causing more defaults and more break downs in society to occur.
    Solution – Principle write downs are the answer. They are done between the lenders and the borrowers with no cost to tax payers initially. They address people’s willingness to walk away by placing them in a situation that makes prudent and sound financial sense for them to stay. They decrease if not entirely erase re-defaults from occurring as they address the affordability issue. They address the dilemma that we are in because they allow for people to save and start functioning with cash which leaves their need for loans reduced which allows for those that have to have loans in normal situations will have access to them because the money will now become available. L3 levels can come down as the debt is written off of the books of lenders because the loans are now performing and the reserves are no longer needed like they were. The liquidity is naturally fed back into society as opposed to artificially fed by our Government. This will allow for the economy to again function smoothly. They do not reward speculators, investors or people who were looking to get rich. All of those folks will not qualify and most will eventually be foreclosed upon. This allows for the inventory at below market prices to be available, but without disrupting the true market value on peoples existing homes that they live in. This stabilizes prices and keeps them from falling lower which ends the cycle downward that we are experiencing. Prices will remain flat for quite sometime, but the crash we are heading for is thus avoided for the most part. This will allow for a much shorter recession and stave off the chance of a future depression.
    Result of solution – This will cause some lenders to go under. As a result the FDIC will be called upon. The money that cannot be recouped will be the burden of the tax payer to shoulder. The cost will be much lower however than what the tax payer will pay from any other attempt to date and I would rather have lenders fail than people getting tossed out of their homes. Society will also benefit much more from a stable environment and savings can begin to occur which is desperately needed in this country. That savings will add liquidity back into lenders to keep the natural economy operating smoothly. By tightening up credit requirements we can close the loop holes that existed so that a bubble doesn’t reappear. This is not a reward for bad behavior, but more of a need to allow society on a whole not to be punished for the much smaller reckless behavior of the few. That is what is happening today and will continue to happen if something is not done.
    Caveat – A much smaller targeted stimulus will still be needed. This would be targeted at the lenders who can show that they are strong and sound to be able to stay solvent through the recession that we are in as principle write downs do not resolve that. By targeting the stronger lenders we ensure that the tax payer has the best possible chance of getting most if not all of their money back unlike the bailouts we have seen to date which in my view virtually assure us that we won’t. It keeps the lenders solvent through the rough times ahead and allows for them to continue to function smoothly which in turn allows the tax payers to be able to ride out this downturn as well. This in no way re-inflates the bubble, but rather allows for a functioning economy where as the people who honestly deserve to, can start to repair their balance sheets and place themselves in a better position for the future while those not deserving get punished but have the ability to start over as well.
    I don’t know if that is enough to temper your outrage, but it is the foundation of my belief that principle write downs are truly the solution and only possible solution I have seen that addresses all the concerns of everyone and gets us out of the risk we are currently exposed too. They mitigate disaster and cause the least amount of losses to the tax payers. By the way I do feel the way you do in many cases and I am also an old school conservative capitalist myself. I just think the situation is dire enough however, that we need to do this, and I am willing to place my differences aside as a result for the common good of the people.

  260. Sorry about that…

    OK Kevin, then I will take a stab at tempering your moral outrage. I cannot speak for Mr. M. but I do agree with everything he has said in regards to principle reductions. I don’t think I can get you to believe in principle reductions, but I do believe I can make a damn good case for them that you will agree with. We shall see…

    Problem – We have laws that allow people to walk away from their home with no penalty other than some social stigma and a credit rating ping that gets lifted in approximately 3-4 years if you don’t do anything else that would negatively affect it during this time frame.

    Risk – The potential that hundreds of thousands of people may walk if it makes financial sense to do so exist.

    Knowledge – The situation we see taking shape in CA for example has proven that people’s willingness to walk is very real. We know this because of a few developments that have taken place. The levels of people who have utilized the various programs being offered to get themselves financially stable to be able to afford their mortgages again are quite small. The amount of continued foreclosures is quite massive and shows no signs of letting up. Companies have actually been born out of the ever increasing willingness to walk away, and they are proving to be successful, and profitable businesses. This is proving that the risk does exist, so there is now valid reason for concern.

    Failed attempts to temper the risk – We have proof that all of the programs to date are not viable options to mitigate the risk of people willing to walk away. In fact due to the large number of people, and in a very short period of time, who re-default after using these various programs, one could argue that they are causing even more people to walk away. As many others witness the failures of these programs it is having the effect of fewer and fewer people even making an attempt to try them out for fair of eventual failure anyway and the sheer cost they incur as a result.

    Dilemma – As a result of the massive wave of defaults it is placing a strain on lenders balance sheets. Lenders are then forced to absorb these losses and must build reserves to accommodate for them and future losses. They are also raising their L3 asset levels out of a need to preserve what little capital they have left from being part of those reserves. This is causing a lack of available funds for loans to people to purchase homes, businesses to get funding, people to get school loans, buy cars and the list goes on. As a result we are seeing a credit squeeze develop which is paralyzing our nation’s ability to function smoothly. We know this by looking at car sales, home sales, retail sales, business failures etc. Businesses have to borrow short term to stay in business due to A/R lags and as a result cash needs. Students need to borrow for college until they earn their degrees and are then able to get a job to pay them back. Cars break down and people need loans to purchase vehicles to get to work. People’s every day lives are being tossed into turmoil. These are not your over leveraged, rich seeking, risk taking folks that are getting crushed in housing, but rather every day folks just trying to live their modest lives. As a result of not having access to money for every day life, normal sales have stalled and that is forcing job losses. This cycle is repeating itself over and over causing millions to lose their homes, jobs, stop college, etc. and that is harming the over all economy and preventing it from functioning. That in turn has caused a massive recession to occur and quite possibility some say may cause an eventual depression to develop.

    Government response – Out of need to add liquidity to allow for a normal operation of things for these every day folks the Government asked for a $700 Billion dollar bailout. Much of that money was improperly handed out to rescue Fannie, Freddie, Auto Manufacturers, AIG, etc. They also threw money at lenders and asked them to please lend it out. Not to reignite the bubble, but to allow for these basic financial needs to be met and for society to operate smoothly again. They failed to make mandates on the lenders and gave the Fed too much power to do what they wanted so the money got squandered for other things like debt and acquisitions. No help came to the markets as a result of this and now we are in even worse shape than we were, but with a massive budget deficit that the tax payers have yet to pay for.

    Situation – Now we have Obama seeking up to $1 Trillion to add jobs that have been lost and to get things moving and functioning normally again. This does not address the root cause for the disruptions however. This will only further increase our budget deficit and add even more money that the tax payers will have to eventually pay for. Money we do not have and won’t if this continues. Furthermore we see no let up at all in the economic slide this country continues to face. We also have done nothing to mitigate the risk of people’s willingness to walk away. This will only exacerbate the problem further as we move along into 2009 causing more defaults and more break downs in society to occur.

    Solution – Principle write downs are the answer. They are done between the lenders and the borrowers with no cost to tax payers initially. They address people’s willingness to walk away by placing them in a situation that makes prudent and sound financial sense for them to stay. They decrease if not entirely erase re-defaults from occurring as they address the affordability issue. They address the dilemma that we are in because they allow for people to save and start functioning with cash which leaves their need for loans reduced which allows for those that have to have loans in normal situations will have access to them because the money will now become available. L3 levels can come down as the debt is written off of the books of lenders because the loans are now performing and the reserves are no longer needed like they were. The liquidity is naturally fed back into society as opposed to artificially fed by our Government. This will allow for the economy to again function smoothly. They do not reward speculators, investors or people who were looking to get rich. All of those folks will not qualify and most will eventually be foreclosed upon. This allows for the inventory at below market prices to be available, but without disrupting the true market value on peoples existing homes that they live in. This stabilizes prices and keeps them from falling lower which ends the cycle downward that we are experiencing. Prices will remain flat for quite sometime, but the crash we are heading for is thus avoided for the most part. This will allow for a much shorter recession and stave off the chance of a future depression.

    Result of solution – This will cause some lenders to go under. As a result the FDIC will be called upon. The money that cannot be recouped will be the burden of the tax payer to shoulder. The cost will be much lower however than what the tax payer will pay from any other attempt to date and I would rather have lenders fail than people getting tossed out of their homes. Society will also benefit much more from a stable environment and savings can begin to occur which is desperately needed in this country. That savings will add liquidity back into lenders to keep the natural economy operating smoothly. By tightening up credit requirements we can close the loop holes that existed so that a bubble doesn’t reappear. This is not a reward for bad behavior, but more of a need to allow society on a whole not to be punished for the much smaller reckless behavior of the few. That is what is happening today and will continue to happen if something is not done.

    Caveat – A much smaller targeted stimulus will still be needed. This would be targeted at the lenders who can show that they are strong and sound to be able to stay solvent through the recession that we are in as principle write downs do not resolve that. By targeting the stronger lenders we ensure that the tax payer has the best possible chance of getting most if not all of their money back unlike the bailouts we have seen to date which in my view virtually assure us that we won’t. It keeps the lenders solvent through the rough times ahead and allows for them to continue to function smoothly which in turn allows the tax payers to be able to ride out this downturn as well. This in no way re-inflates the bubble, but rather allows for a functioning economy where as the people who honestly deserve to, can start to repair their balance sheets and place themselves in a better position for the future while those not deserving get punished but have the ability to start over as well.

    I don’t know if that is enough to temper your outrage, but it is the foundation of my belief that principle write downs are truly the solution and only possible solution I have seen that addresses all the concerns of everyone and gets us out of the risk we are currently exposed too. They mitigate disaster and cause the least amount of losses to the tax payers. By the way I do feel the way you do in many cases and I am also an old school conservative capitalist myself. I just think the situation is dire enough however, that we need to do this, and I am willing to place my differences aside as a result for the common good of the people.

  261. “Problem – We have laws that allow people to walk away from their home with no penalty other than some social stigma and a credit rating ping that gets lifted in approximately 3-4 years if you don’t do anything else that would negatively affect it during this time frame.”

    Agreed. Eliminate the law and make people truly culpable for their obligations. I think that would be fair.

    Let’s assume that the banks aren’t doing principal reductions because it would be more costly than losing $$ on a foreclosure. But even if there were a zero net difference, why would they want to do principal reductions? Not everybody will walk away. Surely you don’t want to reduce the principal of millions of people who can and intend to pay it.

    So if the risk is that the folks (obviously) have to great an incentive to walk away from large amounts of debt, you don’t placate them by paying off the debt they elected to take. You just make it too painful to walk away. Note: I’m not advocating this particularly, but it is a much more moral approach to solve the problem, and would clearly solve it while not costing a cent.

    Banks and lenders cannot shoulder the debt of trillions in principal write downs. They cannot even stay afloat with losses from foreclosures. It’s impossible. It would have to come from the gov’t, taxpayers.

    You say that this is for the common good of the people. A third of the nation rents. A large fraction owns outright. An even larger fraction is not underwater and won’t be. So how is reducing the principal on those who are underwater with the tax dollars of everybody else helping the common good? Sacrifice the majority to help the minority? That doesn’t temper my outrage one bit, but thanks for taking the time to make the effort.

  262. “Eliminate the law and make people truly culpable for their obligations. I think that would be fair”

    You can do that for future mortgages, but what about the ones that people already hold. No way can you make it retroactive.

    “Let’s assume that the banks aren’t doing principal reductions because it would be more costly than losing $$ on a foreclosure. But even if there were a zero net difference, why would they want to do principal reductions”

    It has already been proven time after time that is not the case, so that assumption cannot be made. It is a fact that losses to lenders are far greater through foreclosures than principle write downs.

    “Not everybody will walk away. Surely you don’t want to reduce the principal of millions of people who can and intend to pay it”

    Yes, in fact that has to be part of the deal with any borrower under water. They have the right to request and expect a principle write down to current market conditions at a set date in time. You must provide proof that you are underwater from the fall in home prices wiping out your equity and not because you have not paid your mortgage for a year or some other self inflicted reason.

    “So if the risk is that the folks (obviously) have to great an incentive to walk away from large amounts of debt, you don’t placate them by paying off the debt they elected to take. You just make it too painful to walk away. Note: I’m not advocating this particularly, but it is a much more moral approach to solve the problem, and would clearly solve it while not costing a cent”

    Again for future mortgages I don’t have a problem with that, but we already have that in place. It’s called a down payment. The lenders tossed that out the window chasing profits and it bit them in the ass. Home owners having no skin in the game have already proven that they will indeed walk.

    “Banks and lenders cannot shoulder the debt of trillions in principal write downs. They cannot even stay afloat with losses from foreclosures. It’s impossible. It would have to come from the gov’t, taxpayers”

    It will cost them much more in losses by way of foreclosure, so this is a solution to that. If they can’t afford principle write downs then they might as well shut their doors now, because foreclosures will most certainly wipe them out.

    “You say that this is for the common good of the people. A third of the nation rents. A large fraction owns outright. An even larger fraction is not underwater and won’t be. So how is reducing the principal on those who are underwater with the tax dollars of everybody else helping the common good? Sacrifice the majority to help the minority? That doesn’t temper my outrage one bit, but thanks for taking the time to make the effort”

    Many of these people that you speak of are also getting hurt (collateral damage) along with those underwater. Many of those renters have children in college. Many of those that own outright have small businesses with employees to pay. Many of those not underwater today are heading underwater and that slide will only continue until something is done to stop it. The overall public is getting crushed and will continue to get crushed. This is more like helping the majority by saving the minority. Not that I totally agree with all of them, but we do that all of the time. What do you call welfare, food stamps, heat assistance, Medicare, Medicaid, etc. They are all programs to assist the minority at the benefit of the majority in some form or fashion. As an example Medicaid allows for much of the elderly that without it would be the responsibility of the families individually to pay for. So your mother gets cancer and because you don’t have $400,000 to pay to make her better she dies? The majority does however have the money because not everyone’s mother has cancer. So for the good of the minority that do, the majority pitch in and thus keep her alive.

  263. “You can do that for future mortgages, but what about the ones that people already hold. No way can you make it retroactive.”

    It’s no more impossible than reducing the amount they owe the banks. You can’t retroactively punish the banks for the decrease in home values. So out of two impossible scenarios that both keep people in their houses, I’ll opt for the one that doesn’t reward them with hundreds of thousands of dollars.

    “It has already been proven time after time that is not the case, so that assumption cannot be made. It is a fact that losses to lenders are far greater through foreclosures than principle write downs.”

    I keep hearing this on Mr Mortgage forums, and it’s offered at face value, but where does this exist in ink? I think somebody just once made it up and you all pass it around like it’s gospel. If the banks saved money by doing reduction of principal, people wouldn’t be foreclosed upon. True, it’s happening in some circumstances, but bottom line the fact is that it cannot be financially preferable, or the banks would be doing it across the board.

    “They have the right to request and expect a principle write down to current market conditions at a set date in time. You must provide proof that you are underwater from the fall in home prices wiping out your equity and not because you have not paid your mortgage for a year or some other self inflicted reason.”

    You missed my point. Of course everybody will apply for the principal reduction if it’s being offered. I was pointing out that those who otherwise would continue to pay their current mortgages would now apply for their free money. That is just dumb.

    “It will cost them much more in losses by way of foreclosure, so this is a solution to that. If they can’t afford principle write downs then they might as well shut their doors now, because foreclosures will most certainly wipe them out.”

    That’s cool, I’m all for bad banks going under, but then somebody else will buy the mortgages and decide it’s financially impossible for them to shoulder that kind of debt. In essence what you’ll have are millions of mortgages all sitting in a pile, good and bad ones, and nobody will touch them except to foreclose and liquidate.

    “Many of these people that you speak of are also getting hurt (collateral damage) along with those underwater.”

    Which is why it’s wrong to give hundreds of thousands of dollars just to those who are underwater. We each have to get through this on our own. Rewarding those who helped create this mess will not get us out.

    “What do you call welfare, food stamps, heat assistance, Medicare, Medicaid, etc. They are all programs to assist the minority at the benefit of the majority in some form or fashion.”

    That’s temporary relief for those who cannot afford the services. Note: houses and mortgages are not to be equated with the NEED TO EAT AND SURVIVE.

    Are you a straight-up marxist? I ask the question genuinely, not being snarky. Financially the plan doesn’t make sense, and you lace your arguments with the “good for everybody” speak that sounds exactly like a banana republic dictator, or communist regime. The financial argument you’re making is based on the believed myths (that exist here and nowhere else) that principal reductions for all are cheaper than foreclosures on some, and that there is a greater social benefit in doing so. No offense, but that is completely bogus. We’re entering a massive recession because our society became one where people used their houses as ATMs, became wild spenders, buying garbage they couldn’t afford. That time is over. The ATM needs to never come back. Sure there are job losses, as there always are in a recession, but recessions are good. They force industries and economies to adapt to the new realities, become efficient. It’s painful, but good in the end.

  264. “It’s no more impossible than reducing the amount they owe the banks. You can’t retroactively punish the banks for the decrease in home values. So out of two impossible scenarios that both keep people in their houses, I’ll opt for the one that doesn’t reward them with hundreds of thousands of dollars”

    By reducing their principle you keep them in their home, but by making them recourse loans effectively immediate you have altered the terms of a contract and it would not stand up in the court of law by any stretch unless both parties agree. You can’t legally do what you suggest.

    “I keep hearing this on Mr Mortgage forums, and it’s offered at face value, but where does this exist in ink? I think somebody just once made it up and you all pass it around like it’s gospel. If the banks saved money by doing reduction of principal, people wouldn’t be foreclosed upon. True, it’s happening in some circumstances, but bottom line the fact is that it cannot be financially preferable, or the banks would be doing it across the board”

    As the Fed has stated in their congressional testimony the reason lenders do not want to write down principle is for various reason none of which are cost. They are as follows:
    1. Any sale of a note or write down of principle must be taken as losses immediately – Banks do not want to take losses when they can toss them in L3, foreclose eventually and then take the losses which will occur down the road.
    2. Lenders fear if they do so and prices fall further then they may feel pressure to do so again – This is why I say lenders must prove that they are capable of handling the write down and also prepared for more losses if they were to happen. No second chance here.
    3. If home prices were to rise then the lenders would not share in the gains – You add into the write down that any equity gains that bring the value up to the original loan amount must be shared in some fashion. Perhaps a 50/50 split for example at time of sale. This could however terminate at some selected period of time I suppose.

    “You missed my point. Of course everybody will apply for the principal reduction if it’s being offered. I was pointing out that those who otherwise would continue to pay their current mortgages would now apply for their free money. That is just dumb”

    No, it is called being fair.

    “Which is why it’s wrong to give hundreds of thousands of dollars just to those who are underwater. We each have to get through this on our own. Rewarding those who helped create this mess will not get us out”

    We are not giving anything to anyone, but rather the lenders are making a needed change in the note with the homeowner. That is up to them and has zero affect on us.

    “That’s temporary relief for those who cannot afford the services. Note: houses and mortgages are not to be equated with the NEED TO EAT AND SURVIVE”

    That is exactly what principle write downs are… temporary relief from those that cannot afford it. Without it many will end up drawing on the services you say are OK and then the tax payer foots the bill. I don’t know about you, but I would prefer not to do so and would much rather let the lenders foot the bill.

    “Are you a straight-up marxist? I ask the question genuinely, not being snarky. Financially the plan doesn’t make sense, and you lace your arguments with the “good for everybody” speak that sounds exactly like a banana republic dictator, or communist regime. The financial argument you’re making is based on the believed myths (that exist here and nowhere else) that principal reductions for all are cheaper than foreclosures on some, and that there is a greater social benefit in doing so. No offense, but that is completely bogus. We’re entering a massive recession because our society became one where people used their houses as ATMs, became wild spenders, buying garbage they couldn’t afford. That time is over. The ATM needs to never come back. Sure there are job losses, as there always are in a recession, but recessions are good. They force industries and economies to adapt to the new realities, become efficient. It’s painful, but good in the end”

    No, as I told you I am actually a staunch conservative, have voted republican my entire life and hate the idea of having to do this, but I am also a realist and see that something must be done to save our overall economy and people as a whole.

  265. “You can’t legally do what you suggest.”

    I know, and as I’ve stated, I don’t honestly suggest it. I’m pretty principled when it comes to my opinions. If somebody can walk away from their bad investment without recourse because it’s legally bound to be the case, that’s the law of the land and shouldn’t change retroactively. On the flip side, if you want to keep your house and are underwater 50%, you better continue to pay, because you’re obligated to that debt.

    “As the Fed has stated in their congressional testimony the reason lenders do not want to write down principle is for various reason none of which are cost. They are as follows: 1, 2, 3″

    None of those refute my assertion that it’s more worth it for the banks to foreclose than reduce principal. In most cases, at least.

    “That is exactly what principle write downs are… temporary relief from those that cannot afford it. Without it many will end up drawing on the services you say are OK and then the tax payer foots the bill. I don’t know about you, but I would prefer not to do so and would much rather let the lenders foot the bill.”

    A guy that bought too expensive of a house doesn’t “need” it. He was greedy, or planned on flipping for profit, or wanted the three car garage. Point is that you cannot equate this with social services that give people food and medicine. That you’re asserting they’re the same makes me think you’re baiting me here, but I’ll move on…

    “No, as I told you I am actually a staunch conservative, have voted republican my entire life and hate the idea of having to do this, but I am also a realist and see that something must be done to save our overall economy and people as a whole.”

    I know many liberals that have a “fuck that” attitude about principal reductions, but assumed it would be more of a “responsibility prevails” conservative p.o.v. I guess political philosophy doesn’t dictate people’s opinions on this, or at least the way I thought they would.

  266. Stu,

    Sorry. I think I’m missing something here. You said:
    “That is exactly what principle write downs are… temporary relief from those that cannot afford it.”

    How would you suggest that “temporary” work in a principle write down?

  267. Steve – “How would you suggest that “temporary” work in a principle write down?”

    Because they’ll refinance the house, spend the money on garbage, and be in the exact same spot wanting principal reductions again. If they were irresponsible enough to get themselves in this spot, it’s a good bet they’ll do it again.

  268. Kevin,

    “Temporary write down”, to me, seems to mean a mortgage mod where the parties sit down and change the terms of the loan so that the owner can go forward. The temporary part would be the part of the mortgage that becomes a “silent lien”.

  269. Steve,

    “Temporary write down”, to me, seems to mean a mortgage mod where the parties sit down and change the terms of the loan so that the owner can go forward”

    Correct Steve, the two parties sit down and agree on a totally new loan. Everything is open for discussion based on the information gathered by the lender.

    “The temporary part would be the part of the mortgage that becomes a “silent lien”

    Not exactly, because their isn’t any lien involved. Unless you are referring to the 1’st and only mortgage (new) on the property.

    “How would you suggest that “temporary” work in a principle write down”

    The principle write down comes with restrictions based upon the paperwork gathered. For example, maybe if the homeowner sells within 10 years of the transaction they must split any gains they may have 50/50. Maybe because of their situation financially being better than average they will be asked to provide some skin into the game like say 5% down will be required. Each deal will be unique by borrower. This is not a problem you can throw a blanket over which is why all efforts to date have not worked. The attempts to date by everyone are not hitting or even aiming at the bulls eye but rather wildly just throwing stuff at it in a desperate attempt to slow it down. We need an approach based on ones ability to remain solvent and within the guidelines of where they sit financially. That all being said the “temporary” is relative to them being given a reprieve to stay temporarily with no restrictions they must adhere to, but sometime at a later date something may be required back in some way, shape or form.

  270. Stu,

    I think you’re being too complicated for most mortgage brokers and/or servicers out there. My experience has been that they have trouble keeping a handful of products straight. You seem to be asking too much of them.

    Let’s say that a servicer were smart enough to do a non-cookie cutter mod, there is still the issue of the holder of the MBS. The servicer and the holder discuss options: term, %age, lien, profit sharing, whatever etc. and come up with a mod that seems to work for the holder. Now servicer needs to go to the owner of the loan (MBS) and try to sell the deal to him. This whole thing is too complicated.

    But there is some hope in the treasury buying MBS. They can get these tranches for pennies on the dollar. This is happening right now. I believe that a lot of these loans will soon be owned by the gov (probably parked in Fannie/Freddie). Some time in the future I believe we will see mods because if the servicer also owns the loan, the deal can be done without going to a third party.

    One caveat: I still don’t see forgiveness. I see flexibility and postponing payments (liens (that would be virtual profit sharing)). The government can’t start forgiving debt on an asset – it needs the $$$ to pay off the trillion $$$ deficit.

  271. Interesting back and forth now and I’m getting a clearer picture of the idea’s behind principle reductions but I’m going to have to say that I don’t have any faith in it working.

    I haven’t heard Mr. M’s idea yet but some of the principle reduction idea’s I’ve heard so far take way to many things for granted. i.e.

    1. Legal issues
    2. Complexity issues
    3. No lender left behind issues
    4. Cost benifit analysis.

    This may be a little weird but this argument actually can be decided with a simulation given the statistics that are available at this time.

    You actually approach this in a similar way you do a blind trial on a new drug. You ask for volunteers that have the contagion, (in this case bad loan desease), and you ask for them to sign up. In this case you want a bubble state, say S. CA specifically and you ask the volunteers to provide their data and all circumstances involved in the loan. You will need to receive a sample of around 3000 loans where a board will select a weighted demographic of 1000 samples based on the their needs.

    Then you select a control board, (no connection to the selection board), they will originally only see the address of the control sample. This board then selects a sample of REO or defalt houses in the neighborhoods as the samples and assesses w(REO specialists, auctions, current sales) the real value/cost trade off to the bank.

    Unlike an FDA trial which takes years, this data already exists and just needs to be entered into the computer for the simulation. Since the principle reduction crowd wants to mandate this then you don’t even have to negotiate with the lender, you can just imput the framework according to the mandate and cost benifits just pop out.

    On the flip side the control group evaluates the real price of an immediate auction sale and compares that with the bulk REO specialists offer which takes into account future market reductions.

    This sounds like a much more interesting study then some of the lofty economic numbers that are currently being thrown around by the gov’t and given the number of samples we can deduce just how expensive this might eventually become for the taxpayer if principle reductions come into effect because we can create a questioneer/survey to determing the desire and cost of a principle reduction for everyone in the sample groups neighborhood.

  272. The government mandates the recall of the defective mortgages, just like it would and has for toys, food, car parts etc…with a replacement mortgage given at the current appraised value.

    The holders of the mortgages have the option of accepting either the new replacement mortgage balance and future cash flow or just the reduced principal balance payment and the mortgage is paid off.

    The loss is taken by the banks and investors, just like their profits were, capitalism. And yes some would lose or be taking over by the FDIC.

    There is a concession in the mandate, that the bank could write up to 3x the loss to offset the “cost of the loss” on their balance sheets and for tax purposes to assist them to remain solvent.

    Another benefit to the banks and investors, is that the largest portion of the homeowners interest payments is made during the beginning of a loan, which starts over, increased profits.

    The mortgages that weren’t previously sold into securization vehicles being held by private investment firms and banks assist in the solvency issue directly and the reserve issue immediately (liquidility)

    There is also an exception that foreign countries would be reimburse the principal loss if proven that not sufficient interest income was paid to offset the loss of principal only.

    Mortgage backed securities is investing in a product for profit and possible loss.

    *TARP funds will be recalled, unless participation in the plan is adhered to.

    *No previous issued government guarantees will be honored due to lack of transparency, over-leveraging, misguided book-keeping records and having roughly 30% of the total mortgages outstanding of 12.1 Trillion Dollars DEFECTIVE.

    *lack of total participation in the plan closes all federal governments monetary access to them, effectively making capitalism work since as shown by the recent liquidility and credit crisis, the banks need the taxpayers to stay afloat–their choices should have been similiar to what happens when a business makes poor decisions or loses more money than they can make, bankruptcy/merger/takeover must happen.
    Banks are no exception, that is why we have the FDIC, to protect taxpayers.

    * No governmental agency will be purchasing toxic MBS for over 25 cents on the dollar or accept as type 2 or 3 collateral for more than the 25 cents on the dollar—–exception is with total participation in the plan, special arrangements/negioations can be obtained.

    The loss to all banks and investors roughly if 30% of all homeowners are underwater (10% are deliquent currently) and the total outstanding residential mortgages is 12.1 Trillion dollars would cost 1.45 Trillion Dollars to correct.
    (straight math, without adjusting for some areas will only reduce 20%, 30%, 40% and most likely the bubble states will be reduced by the full 50%.)

    Just some interesting points:

    We have over 8500 banks, and all did not participate in “special” programs but since it is no longer the programs or withdrawal of the programs affecting the downward cycle but the foreclosures of all mortgage types being affected. The mandate or just the above conditions would ensure participation in the program from all banks. The plan calls for a refinance (possible money earner) not modifications. The Solvent banks that aren’t invovled with the losses will still be in line for additional profits.

    For the year 2007, 600 financial executives earned in salaries and bonuses the sum of 1.3 Trillion Dollars. They can afford it.

    Participation in the program also conditions for the REO’s, currently and from fallout ( not every one will qualify) to be listed at the reduced value, and the loss does not have to be taken until sold for book-keeping purposes. If it is found, that due to market satuation
    of homes, the home still can not be sold after a period of 1 year, the government can purchase the REO at a reduced price and auction it off with a subsity/grant to a marginal income borrower.

    Prices/values are falling due to REO’s being the majority of the sales and they are being discounted and sold under the market, lowering the overall value of the area.(one of the reasons why the product is defective) Removal of the discounted inventory, removes the declines in prices. Values are based on comparables to the area, reduced principal refinances will be recorded as a “comp”

    One more point, the latest quoted fiqure that the TAXPAYERS either paid, supplied or guaranteed for the banks to stay afloat was over 7.4 TRILLION DOLLARS, and

    there are some of us actually worry that a few homeowners might get over for 100-200K with bank losses?

    not taking in consideration that the total amount of money guaranteed to the banks is over the TARP amount, where is their accountability and responsibility?

    Why should the taxpayer be on the hook for the losses only? Nationalism? Then where are the profits?

    Principal reductions should be based on the area’s value to homeowners who have paid and most likely will pay.

    Stu, thank you for the compliment about being logical. I am still learning about the financial end of this meltdown for a reasonalbe working solution, and would appreciate your input. My plan consist of 46 pages written in September to ST Paulson, but I realize I have to miminize it somehow.

    Kevin, thank you for toning down your “voice” but since you state you believe in capitalism. I would appreciate your insight into flaws in the plan without “emotions”, but business logic, as well as other posters.

    And I apoloqize to all for the delay between post, I still have to babysit my grandkids. My plan does not benefit me personally, it does stop my grandchildren’s anticipated equity loss though, so I guess that is a benefit.

    As stated before, I live in New York, and while we did not experience the bubble state appreciation, we are experiencing the depreciation, as are so many other states. This is not a bubble state problem nor a McMansion problem.

  273. KurtA:

    I apoloqize for not including your response, I overlooked it.

    I am not changing any laws including contract laws nor servicing rights laws, I am looking to “convince the higher powers” that they should be enforcing or mandating one, Consumer Protection with the mandatory recall of a defective product, namely underwater mortgages.

    My proposal is 46 pages, I am in the process of shortening it though.

    My proposal stays within the realm of democracy as well as capitalism, both of which are the groundwork of this country, which I personally believe if not greatm but better than other countries while we are still headed for a “great recession if not depression”.

    I apologize in advance, if I insulted any poster from another country, with my opinion and belief.

  274. Sorry,
    that should be if not greater than, but better than any other country, while we are still …

  275. A combination reply to a number of the above earlier posts:

    You are absolutely right, during the Great Depression, residential values only decreased 75%, while Japan’s residential values decreased 90%.

    The housing market still has a long way to go in correcting ITSELF to be “affordable” for the borrowers who waited for prices to come down to their incomes.—just a note, prices didn’t increase naturally why do you think they are coming down naturally?

    I just want to know, who picks the “income” number when the market can stop declining? and how does it stop decreasing if there is a continuation of foreclosures reducing the values further?

    The general consensus is when housing and incomes are in line with each other for affordability the market will stop declining ? But again I ask how? How does the market, which has no soul or mind, accomplish this, when does it know when it should stop?

    And at what expense?
    Whose expense?
    Who actually benefits?

    (renters waiting for the bottom to be obtained, but what about the economy, will they still have a job?)

    We live in the USA, let capitalism work. The government needs to mandate a recall of all defective mortgages and not have the taxpayers money benefit Wall Street.

  276. Susan,

    Can you define “defective mortgage”?

    I know an example of two houses. They are next to each other on the same street. Both are $50-100K underwater. The values and loans are the similar. Both work at jobs that are similar in salary.

    House 1: Homeowner is current. Even though he’s underwater, he’s been making all his payments to Bank A.

    House 2: Homeowner has missed a couple of payments to Bank B and is in the process of walking or modification. He’s mad that another house on the street is being offered, after foreclosure, for a lot less than his.

    Are both of those mortgages defective?

  277. Susan, your plan seems to be in line with my ideals except you are asking for the Government to handle it. I don’t want them anywhere near this to be quite honest. They have screwed up enough already and continue to make poor mistakes. This must be done directly with lenders and borrowers leaving Uncle Sam and hence the tax payers far, far away.

    If the lenders do not comply then bankruptcy judges will convene to tell the lenders what they are going to do. I think after a few orders are handed down then the lenders will quickly learn that it is much easier to control your own destiny than to be ordered what to do, and they will then swiftly begin to comply. I really think the role of Government is not warranted here other than ruling for a “temporary” order for bankruptcy judges to be able to rework loans for underwater homeowners over say the next 2 year or so.

    This problem is not going away and as some are suggesting, to just allow it to all work out on its own, isn’t going to help matters any and in fact will have an extreme and negative impact on not only housing for everybody, but the overall economy. To your point Susan which I totally agree with:

    “Prices / values are falling due to REO’s being the majority of the sales and they are being discounted and sold under the market, lowering the overall value of the area”

    I would also add that during typical years foreclosures are generally sporadic and don’t have much of an impact if any on comps in any given area. Foreclosures also have no immediate affect on price declines as well. During recessionary periods however, that changes. Now sellers are competing with lenders when trying to sell. Lenders hold massive amounts of inventory to dump, so they now control prices. No longer are the prices being paid indicative of the true market value for the area. This is one reason why we see over corrections develop due to prices being pulled down via comps from massive amounts of distressed sales continuing on unabated. This needs to be stopped immediately because it is spreading like cancer right now in neighborhoods all across this country.

    Steve,

    “I think you’re being too complicated for most mortgage brokers and / or servicers out there. My experience has been that they have trouble keeping a handful of products straight. You seem to be asking too much of them”

    We have over 4.5 Million people unemployed in this country right now and you are seriously telling me this simple little plan is too complicated for them? Fire them all and go hire some people that don’t whine so much, and have half a brain in their head to get it done then. An 8’th grader should be able to figure this out. Just follow the guidelines and the number pops out for you. A few decisions may need to be made using common sense and your done.

    “Let’s say that a servicer was smart enough to do a non-cookie cutter mod, there is still the issue of the holder of the MBS. The servicer and the holder discuss options: term, %age, lien, and profit sharing, whatever etc. and come up with a mod that seems to work for the holder. Now servicer needs to go to the owner of the loan (MBS) and try to sell the deal to him. This whole thing is too complicated”

    I demand that the service be smart enough or they get fired. You start with all homeowners having mortgages with the same lenders holding the notes. This way you can plow through a bunch of them rather quickly and get good at it. Then you are trained, qualified and have set precedence on how you move forward. The MBS will talk shop or they lose out and besides, if the borrower gets foreclosed on they lose out big time. You place time constraints on the MBS to get back to you or it moves right to the bankruptcy judge. As I said, I am sure after a few rulings get swiftly handed down that everyone will be willing to talk and quickly.

    “But there is some hope in the treasury buying MBS. They can get these tranches for pennies on the dollar. This is happening right now. I believe that a lot of these loans will soon be owned by the go (probably parked in Fannie/Freddie). Some time in the future I believe we will see moods because if the servicer also owns the loan, the deal can be done without going to a third party”

    That is why the Democrats have already been discussing cram downs. They are going to do this regardless with Fannie and Freddie, but want everyone to play nicely together. With the threat of cram downs the bully pulpit is alive and well. Sometimes people just need a candle lit under their ass to get moving on something. Cram downs are that candle!

    “One caveat: I still don’t see forgiveness. I see flexibility and postponing payments (liens (that would be virtual profit sharing)). The government can’t start forgiving debt on an asset – it needs the $$$ to pay off the trillion $$$ deficit”

    Flexibility and postponements are not working and we have plenty of proof of that. Their incentives are not enough to make the borrowers want to play ball. They offer plans that have too much of a chance that in they end the borrower will default anyway. Not going to work as we have already clearly seen.

    The Government will get the money to pay off the deficit from the backs of our children and their children which is why I did not want to see the stimulus plan approved. Now we have Obama touting more of the same (see why I want the Government far, far away?) which will just cost us tax payer’s money, and not come close to addressing the real problem.

    As time moves on the problem is just getting bigger and bigger while the economy is simply cliff diving. This is what I call the “Spiral Effect” which is self perpetuating. To Susan’s point:

    “The general consensus is when housing and incomes are in line with each other for affordability the market will stop declining? But again I ask how? How does the market, which has no soul or mind, accomplish this, when does it know when it should stop, and at what expense? Whose expense? Who actually benefits”

    It doesn’t know when as some would suggest by saying when it bottoms it will stop. Well if it is falling in a spiral condition as I believe it is then it may appear to never stop as it could go on for decades. This is the fear that I have and see that our Government has as well. They have just not done a very good job at all for that which their charter is “to assist the economy” and have rather tried to control it. The expense of this will be to the tax payers, and it appears to be getting rather large. In fact if you had a child today, they would still be paying down our current deficit until 50+ years old. I see it as a sad commentary on our Governments ability to actually assist the economy. Seems more like the
    Government is slowly destroying it to me.

  278. “I just want to know, who picks the “income” number when the market can stop declining? and how does it stop decreasing if there is a continuation of foreclosures reducing the values further?”

    No one picks it. Markets don’t work that way, never did and never will. Markets stop declining when sentiment has reached bottom. We’re not there yet. Government can try to forestall the inevitable correction and we can/will have 1932 – 1941 all over again.

    “The general consensus is when housing and incomes are in line with each other for affordability the market will stop declining ? But again I ask how? How does the market, which has no soul or mind, accomplish this, when does it know when it should stop?”

    It doesn’t know and it won’t know when to stop. It will generally overshoot by a few months before settling back down into a range or the next leg down; Witness the past 6 months. What’s ahead can only be foreseen by what has taken place over the past 25 years.

    “And at what expense?”

    $Trillions in lost ‘asset’ value and $Trillions more in printed bonds to (try) and floor it.

    “Whose expense?” Everyone’s.

    “Who actually benefits?” Those who have savings, little or no debt and the patience to wade back in when a semblance of normalcy returns to the markets.

    “(renters waiting for the bottom to be obtained, but what about the economy, will they still have a job?)”

    ‘They’ may not have a job – it largely depends on what we’re manufacturing here – and exporting to underpin a solid economic footing of account & trade surpluses. However, ours has been an economy of 72%-of-GDP-by-Consumerism. That paradigm doesn’t shift overnight. The F.I.R.E. economy is Over.

    “We live in the USA, let capitalism work. The government needs to mandate a recall of all defective mortgages and not have the taxpayers money benefit Wall Street.”

    Letting ‘Capitalism work’ while advocating government ‘Mandates’ is incongruous with our founding principles. Government should not ‘mandate’ anything save for what is expressly prescribed in the Constitution. And that doesn’t include meddling to shore up now-deflated bubble markets last time I checked.

    I understand to some, this sounds like high-minded rhetoric and perhaps even higher unrealistic expectation. Fair enough. It’s way too late in the game to try and convince or convert anyone to free market principles. And yes, I know all about Wall Street and the ‘unfairness’ that has taken place – it’s been going on for a long time, not just during the housing bubble.

    It would be great if we could begin anew here and let this thing wash out in free market fashion. Unfortunately, that isn’t going to happen. As Stu has correctly assumed, the Government is going to do something about it. Trouble is, when you wish for government to do something, best not to expect that it will meet your expectations or qualifications of ‘fairness’. Quite likely, is that you get precisely the opposite, along with a healthy measure of regulation and intrusion into your life that you didn’t expect, nor want.

    That’s what’s coming.

    Peace –

    C.C.

  279. There is a lesson that my elders have always taught me while i was growing up and its the same lesson i preach to my friends and family today. The message is “The happiest man is the one without any debt” I am sure you guys will agree in the current situation.

    Hope you all find a way out of this mess soon! Good Luck!

  280. Looks like the banks (at least Citi) have agreed to a mortgage write down proposal:

    http://www.cnbc.com/id/28562632

    If this report is true, not much will change. Burden seems to be all on the homeowner – including the burden to prove that the lender violated “Truth in Lending” before the write down can happen.

    This may make write downs more difficult because now the lender seems to be able to say: “We have a write down plan. Too bad you don’t qualify for it.”

    I know that I signed a Truth in Lending document with my last mortgage. If that’s included as “boilerplate” with mortgages, then who will ever qualify for this workaround?

    Looks like the banks won on this one. The pols also got what they want: bragging rights to say they passed a bill to help homeowners (even if it doesn’t help anyone)

  281. Steve, this is an excellent deal for all parties involved and the emphasis is placed squarely on the backs of the lender. If the Borrower and lender cannot come to an agreement then they put the case in front of a judge and he will decide what happens next based on all of the information he holds in his hand. I guess he is doing the complicated part for those that can’t do it on their own.

    Citigroup is agreeing to the bill under the following conditions:

    1) it applies to loans issued up until the day that the bill is passed >>> I am ok with that. So nobody moving forward. Anyone that screws up today after all of this deserves to fail.

    2) borrowers have to show first that they made a good faith effort to approach their lender and get a workout, so bankruptcy was not their first option >>> I am ok with that too, and in fact this had to happen first. Now th research has been done for the courts. Easy to make decisions when you have all of the facts. The lenders will know the rules (guidelines) so they know where they will have to be. The borrowers do too so they also are informed and know what to expect. It is easier to sign up for something when you know the rules, the guidelines and are comfortable as a result.

    3) bankruptcy judges can strip away lenders’ creditor rights if they violated the Truth in Lending Act >>> Anyone that lied and it can be proven that they did… bye-bye!

    I will stick to no later than the end of this month before cram downs and / or principle write downs will be upon us. In my opinion it is long overdue and we wasted a lot of money elsewhere until now. That sucks! This will help place a market floor on the industry. Lot’s of stuff still out there for speculators, investors and first time buyers in REO. Better areas will be able to control a slower price drop and maybe none will even develop due to foreclosures leveling off. This is good.

  282. Stu,

    This is a smokescreen and I predict it will go nowhere in reality.

    This may postpone a bankruptcy for a short while and give the homeowner a few more months of rent-free living. But we’re talking about 4.6 million people as of now. As soon as people think that they can get $100K off their mortgage, they’re going to want theirs. For that sort of money and for a lower payment for 30 years, I don’t blame all the people with a house that’s upsidedown jumping for the deal. What are we going to have 10 million foreclosures? 20 million?

    I suspect this is going to be a case of good loans (and borrowers) gone bad.

    Other issues:

    1. the hoops that the new law seems to make the borrower jump through before they apply

    2. the bankruptcy courts are already filled to the gills – how are they going to be able to handle all the customers?

  283. Easy questions Steve…

    1. Good, the borrowers need to jump through hoops if they want the lender to rewrite their motgage. I am totally fine with that.

    2. Packets, much like the lenders are doing today with foreclosures. You know and have all of the data so feed it into the computer and presto you are done.

    This is going places and going places very, very fast Steve. I suspect within the nest 4-5 days we hear some ground breaking approved plan is just about ready to bring to vote.

  284. Stu,

    You are correct. This thing is nothing more than an agreement right now but I’m with you that it gets passed quickly.

    What I suspect is that all that in involved in the process – and this just adds stuff to an already timely process – it’s going to take quite a while before the first person is helped. In the mean time, foreclosures may be forestalled, but this might just add to an inventory of homes in the future.

    This would only work for Chapter 13 the way I see it – restructuring bankruptcy. Granted, the judge may have the ability to lower the principle. But, in 13, all assets are looked at. And I believe that 13 sets up a plan that goes for a number of years. How many people who bought a $800 home, have $0 assets? Good chance that person is making serious money. People who WANT to walk away because it makes financial sense, will still have to walk if they have assets. They’re not going to get a write down with $$$$ in the bank.

    Then there’s the guy who lost his job and is totally tapped out. I don’t even know if he can do Chpt 13. I believe he’s stuck with Chpt 7 – wipeout – no assets – debts forgiven – lose house (and truck) – start again. This new deal won’t help him.

    I suspect that this new agreement will be more hype than help in the long run.

  285. i agree with steve if it goes to BK judge, you could be looking at a F-up catch-22 situation just like he said, have too many assest No Reduction, Have No Assets Lose the House……The Principal Reductions need to have a formula that ALL banks have to adhere to and ALL mortgages can apply for, if its going to work

  286. Steve,

    “it’s going to take quite a while before the first person is helped. In the mean time, foreclosures may be forestalled, but this might just add to an inventory of homes in the future”

    No way that can happen because that is exactly why this bill is being driven through now before Obama takes offcie. His second foot will barely be through the door and this bill will be up for vote.

    “This would only work for Chapter 13 the way I see it”

    The rules have just changed Steve and this does not apply until after the judge makes the call, if it even comes to that which most won’t.

    “Then there’s the guy who lost his job and is totally tapped out. This new deal won’t help him”

    It is not designed to help him. We have many other Federally funded programs in this country that act as a safety net for that scenario, but this isn’t one of them.

    I suspect that this new agreement will be more hype than help in the long run.

    I don’t at all, and I will go way out on a limb to predict that these not only happen, but become the new water cooler talk by valentines day.

  287. Javagold,

    “The Principal Reductions need to have a formula that ALL banks have to adhere to and ALL mortgages can apply for, if its going to work”

    The agreement that happened today seems to be just one more “weapon” for the BK court to use as a cudgel in getting to a resolution in a bankruptcy. This is no panacea by a long shot. This is not: “Listen, Mr. Lender, I’m hurting. The house is worth 25% of what my principle is. I need help.”

    Today’s agreement is: payments missed – notice of default – more payments missed – file for BK – wait for court date – more payments missed – go before the clerk and get a date for the judge – more missed payments – what do you have for assets – “the court thinks that you can pay this on that” – etc. etc. etc.

    I would love to know how many of the foreclosures are people who are tapped out vs. how many are people who just don’t like what happened to the value of their investment so they voluntarily walk even though they could probably still make the payments.

  288. So banks take a loss, and will still give out cheap interest loans? (any impact to future rates?) I’m thinking they’ll go up

    Will the government be the only one lending in the future? Will Fredie/Fanie automatically just do loan mods?

    Will investor buy anymore mortgage back securities? (knowing they can be lowered)

    will the other 50% of the country be pised off? and stop spending even more?

    Will this assures it gets us out of the depression? or did it just put the last nail into it!

    I suspect market forces will still win, always have and always will.. I’m now forced to save even more.. so I can buy again..but I may have to wait longer than 2 years.. since may take longer to get to the bottom.. 10 years? 20 years?

  289. Steve:

    Both of your examples are defective. One would get a better rate than the other because of being a better risk factor.

    Stu:

    Allowing lenders or bankrutpcy courts to handle writedowns or cramsdown, leave no standard formula only one sided negiations. It will not stablize the market.

    And invites the moral hazard clause to some, not all.

  290. Ex Owner,

    “So banks take a loss, and will still give out cheap interest loans? (any impact to future rates?) I’m thinking they’ll go up”

    Well not exactly. Lenders take a loss yes, but they then redo the loan and now hold L1 paper as opposed to L3 paper. Interest rates will rise due to the treasury spread anyway and that is going to happen soon enough. This is an artificially driven interest rate we are seeing that cannot be manipulated for ever, so I agree they are going up.

    “Will the government be the only one lending in the future? Will Fredie/Fanie automatically just do loan mods”

    They have been virtually the only lender for quite sometime already. Fannie and Freddie will not look at all the same by years end in my opinion. A lot needs to be done about them, but they need to get this mortgage / principle write down issue resolved first and then start the actions as a result of that. Once that is done I think that they will start looking at what to do with Fannie and Freddie. The FHA is the new Fannie and Freddie and it will stay that way for a while still, more than likely.

    “Will investor buy anymore mortgage back securities? (knowing they can be lowered”

    The MBS market is dead and has been dead for quite sometime. Unless you are really selling on the cheap virtually nobody is buying.

    “will the other 50% of the country be pised off? and stop spending even more”

    Not if they are smart. They should welcome this as a way to assure them selves that they won’t be joining the other 50%, which I feel many of them would have without it.

    “Will this assures it gets us out of the depression? or did it just put the last nail into it!”

    That remains to be seen, but it certainly will do nothing to curtail the recession. I think it will personally. I think without it our risk is much greater to go from bad to worse. I would guess that if done right it will help to bring the recession to a close quicker thus avoiding any further chance for real damage to occur. Obama and his silly ass $1 Trillion bailout is the wild card however. That could cause us to have a double dip recession through inflation which I think is a good possibility if passed in its current form. That will probably arrive 2-3 years from now and I figure that is when we should be pulling out of this and unfortunately we may be pulled right back down again as a result of this stimulus package instead.

    “I suspect market forces will still win, always have and always will.. I’m now forced to save even more.. so I can buy again..but I may have to wait longer than 2 years.. since may take longer to get to the bottom.. 10 years? 20 years?

    I totally agree that market forces always win! We are all forced to save even more and we all should have been doing so for years. Not to buy however because there are al sorts of deals out there today. The massive amount’s of inventory isn’t going anywhere anytime soon and this will do nothing to that which is now available. This is designed to stop us from adding to it. We will get to the bottom much quicker if this passes, and if it doesn’t then I would agree that at minimum a decade could easily be lost.

  291. Susan,

    “Allowing lenders or bankrutpcy courts to handle writedowns or cramsdown, leave no standard formula only one sided negiations. It will not stablize the market”

    Not true as a formula (+ or -) must be created to add fairness to the decisions. The initial attempt at a write down will also have guidelines that the lenders set in accordance with what the judge’s rulings will be based on. That is how courts rule upon issues such as this, alimony, child support and most decisions where lot’s of rulings are due to get handed down and all on the same topic and where the same basic logic will need to be applied. Ex. When income equals XXX and the mortgage amount = XXX then XXX applies. In other words if you don’t make enough to be able to afford payments on a mortgage even with a modest principle write down then you cannot be saved and therefore are foreclosed on. The judge will come to that same conclusion if the borrower wants to push it due to past rulings and precedent that has been set.

    However, if that scenario applies and it is deemed that they can afford it, then an agreed upon principle write down will occur. If that amount and subsequent new deal is not agreed upon by both the lender and borrower then it goes in front of the judge as well for a ruling. If it meets the criteria that the courts are using then they will probably rule in favor of the lender and if it is short a bit then maybe the judge reduces it further by a small sum to keep it more in line with what has been set as precedent from past rulings.

    If this isn’t done this way there will be total chaos and the courts would be ruling out of control. That can’t and won’t be allowed to happen in my opinion. It is not as if we are going to see a bunch of cowboy judges making all sorts of different rulings on the same sets of data. Giving one guy a $200K principle write down and the next guy, with the same basic paperwork and figures only gets a $25K principle write down. If it were to work that way I would be vehemently opposed to it myself!!

  292. Stu:

    Cram downs only work for the homeowner who is deliquent correct?

    Okay, so I have a block with 20 homeowners on it. The market peak value was $500,000.

    3- purchased for $500,000.
    3-purchased for $425,000.
    3 -purchased for $375,000.
    2- purchased for $300,000
    2- purchsed for $200,000.
    2-purchased for $100,000
    5 -have no mortgage-

    The value now $300,000.

    Who gets a principal writedown and to what amount?

  293. To be fair, one homeowner, each from the top 3 is deliquent. That is inline with the current deliquencies.

  294. Susan, well it is not quite that simple because we do not have all of the data available to make that decision.

    “Cram downs only work for the homeowner who is delinquent correct”

    This also needs to address those not delinquent because that is where the largest walk away borrowers could come from. This is more about making loans not only affordable, but in line with current values. It is not mandated to get reworked, and many who have numbers that don’t seem to work to their advantage all that much, may wish to sit tight rather than take the write down and the restrictions that come along with it.

    Here would be a simplistic example:

    Homeowner A owes $425K on their home. The date of 01/01/09 is used and the value is currently @ $325K, but it is estimated that this property market has an additional decline of $10K coming. The new loan is written at $315K @ 5% for a 30 years fixed loan. Payment = XX. The homeowners are working and can manage this new payment amount and the deal states if the home is foreclosed upon within the next 2 years there is a penalty clause of a recourse $20K to be paid over the next 5 years. Also if the home is sold within the next 10 years 30% of the profits over the $315K or a maximum of 55K (half the initial write down go to the lender).

    Homeowner B owes $400K on their home. The date of 01/01/09 is used and the value is currently @ $325K, but it is estimated that this property market has an additional decline of $10K coming. The new loan is written at $315K @ 5% for a 30 years fixed loan. Payment = XX. The homeowners are working and can manage this new payment amount and the deal states if the home is foreclosed upon within the next 1 1/2 years there is a penalty clause of a recourse $20K to be paid over the next 5 years. Also if the home is sold within the next 10 years 30% of the profits over the $315K or a maximum of 42.5K (half the initial write down go to the lender).

    Homeowner C owes $445K on their home. The date of 01/01/09 is used and the value is currently @ $325K, but it is estimated that this property market has an additional decline of $10K coming. The new loan is written at $315K @ 5% for a 30 years fixed loan. Payment = XX. The homeowners are not working and cannot manage this new payment amount. They would require a much larger principle write down to make this work. The lender and borrower refuse to sign the deal. As a result this one goes to court. The courtroom guidelines for the market and this size home states the principle write down can be for no more than XX% of the total debt if the income of the borrowers places them at less than XX% of the affordability index being used

    There really is far too much information missing to establish a very good example, but as I have previously stated it would be done regionally and there would be guidelines to follow. We obviously do not want to cripple the lenders or place the homeowner in an obvious future default situation. The goal here is for a WIN-WIN and a performing mortgage being the net result. Does that answer your question?

    All of this needs to be worked out by a team of experts by region and includeed in that team but not limited to it would be represenatives for the lenders, and legal teams. Advocacy groups protecting the homeowners. Homeowners themselves and members of Congress. We only get one shot at this so it needs to be done and done right the first time. Once the plan is drawn up it moves along swiftly by plugging in the numbers and using good old common sence above and beyond that. This is not rocket science but rather just a loan on a piece of property, and ones ability to pay it back.

  295. So which one is it??

    – reduce according to what borower can pay?
    or
    – reduce to market?

    What if 2 mortgages are late on 500K
    – owner 1 can’t pay and has income of 50K
    – owner 2 can’t pay and has income of 70K

    both get same reduction?
    _________________________________________________
    What if 2 owners are late?
    – owner 1 makes 50K…and mortage is at 500K
    – owner 2 makes 50K…and mortgage is at 800K

    or I forget..each case will be different… up to the judge? I guess it pays to be balzy with little or no income… REDISTRIBUTE WEALTH right?

  296. can it be reduced to bellow market? like 50% bellow? so the low income borower can sell it after for a nice profit.. that would only fair right?

  297. What amaze me.. is that Hope 4 Homeowner program was revised so many time and finally passed in july? but the start date was in October 1?

    why the delay??????? Was the government asleep??
    Was the sharing over life of the loan with government not good for the country?
    Was the garantee for bank, that no further losses can occur for the bank a bad thing??

    We’re going from good to worse!!
    – no garantee on the new loan… bank could loose again, right?
    – no sharing of profits with the government, bank, country anyone.. the poor get rich, and the rich get poor..

    I forget .. it’s the new thing (black is white, white is black.. news are bad stock market is up)

  298. If they’re unemployed… can they just keep it for free?? or reduce 90% of the value.. so the owner can afford it on section 8??

  299. Can we put a clause in the BK?

    When seling within the next 10 years? the owner gets to keep profit minus loss occured? (rest back to the county,bank,gov)

    When seling within the next 20 years? the owner gets to keep profit minus loss occured minus 1% interest on the loss? (rest back to the county,bank,gov)

    When seling within the next 30 years? the owner gets to keep profit minus loss occured minus 5% interest on the loss? (rest back to the county,bank,gov)

    We all know that at some point inflation will be out of control.. would be only fair,

  300. Can the Obama stimulus now help everybody else too? 50K towards buying a home? or 10 years of no tax if you choose to rent??

    Can we be fair to all – I find it hard to believe that only the BK loosers make up the economy??

  301. Ex Owner, whoa slow down and let me catch up. You are even asking questions I have already answered.

    “So which one is it?? – reduce according to what borower can pay? or – reduce to market”

    Reduce to true market value (nor REO levels) and that is the number you use to see if the person qualifies. If they do great and if not move on to bankruptcy if they so choose (13) or walk away and get foreclosed on.

    “What if 2 mortgages are late on 500K – owner 1 can’t pay and has income of 50K – owner 2 can’t pay and has income of 70K both get same reduction”
    “What if 2 owners are late? – owner 1 makes 50K…and mortage is at 500K – owner 2 makes 50K…and mortgage is at 800K or I forget..each case will be different… up to the judge? I guess it pays to be balzy with little or no income… REDISTRIBUTE WEALTH right”

    Not enough information to decide in your example. Give me one with the proper information and I could have an answer for you in about 10 minutes or less if it is a glaring and obvious answer. Otherwise it may take a few hours to come to the conclusion. The information is key to the decision.

    “can it be reduced to bellow market? like 50% bellow? so the low income borower can sell it after for a nice profit.. that would only fair right”

    Of course not like that, but below market can be written in if it is in a regionally area deemed to still fall some. In other words set the price at the realistic level that home will be worth in 6 months and not 6 months prior or old appraisals.

    “What amaze me.. is that Hope 4 Homeowner program was revised so many time and finally passed in july? but the start date was in October 1? why the delay??????? Was the government asleep?? Was the sharing over life of the loan with government not good for the country? Was the garantee for bank, that no further losses can occur for the bank a bad thing?? We’re going from good to worse!! – no garantee on the new loan… bank could loose again, right? – no sharing of profits with the government, bank, country anyone.. the poor get rich, and the rich get poor.. I forget .. it’s the new thing (black is white, white is black.. news are bad stock market is up)”

    I have addressed this already and yes banks can incur further losses, yes their is a guarantee for the new loan, yes lenders can share in profits and no the poor hopefully get richer, but that really has nothing to do with this idea.

    “If they’re unemployed… can they just keep it for free?? or reduce 90% of the value.. so the owner can afford it on section 8??”

    You are really being a tad silly now don’t you think. If you want to debate the idea of principle Write Downs then lets debate…

  302. If you had two kids..and since you can’t say no chocolate to both

    – would you give chocolate to the bad kid and no chocolate to the good kid?
    – do you know how how load that gets??

    If you have no kids, or just 1.. please reserve your comment :)

  303. The Obama stiulus infuriates me and I totally disapprove of that.

  304. You can always say no.

  305. so the question again:
    Has it been established that the loand mods are on today’s market value or higher?
    Has it been established that the chapter 13 BK can’t go more than 5% bellow market?

    Are you sure that the market is only going down another 5%-10% in 6 months?

    Are we sure it’s going down 10% only, and not 30%.. or can it that it acutally goes up or stay the same?

    Do we know the future?

  306. How do we say no to bailouts? This will be passed in few days/weeks.

    Does the government care we say no?

    For the sake of the country I hope Ben B. is correct.. because you know it could be spend spend spend (loose loose loose) and then what?

  307. Stu, one q:
    you said:
    I have addressed this already and yes banks can incur further losses, yes their is a guarantee for the new loan

    which one is it? how can they loose if there’s a garantee?

  308. Both because lets say in 10 years the deal ends then the lender never got part of the gain (a net loss). Lets say that the borrower defaults again (a net loss). Lets say in 30 years the home is worth less than what the note was for (a net loss). off course the lender can lose even more. As to the other it gets into more legal issues, but the same as they have today, which everyone else has, will not be different and perhaps even tighter I would suspect given again the individuals situation. You ask questions that are tough to answer because you do not provide the actual facts from the exact situation you refer to.

  309. Rocket Science- should have been just a loan on a piece of property and one’s ability to pay it back but due to the “experts” we have the situation today.

    If you put in charge any member of a bank, or even for that manner Congress, you will get your above scenario’s, total chaos, I believe you called it.

    There is nothing there that states stablization of the market, values stop declining because of ????, nor fairness with the defective mortgages.

    In my plan, ALL homeowners who are underwater would be entitled to a principal reduction, if they are current (no moral hazard, covers the no income loans, covers the high ratio loans, covers the adjustables, covers even the option pay arms, covers homeowners who added debt after purchasing the house) One formuala- appraisal done by a roster and new mortgage issued by a roster.
    If they are deliquent, they would have to qualify with proven income at 33/41%, or be foreclosed on. Formula-appraisal done by a roster, new mortgage issued by a roster, no conflicting interest.

    The banks loss is taken at the time of the refinance, 3 x the loss, it is replaced with a level 1 mortgage that they made money on, it is not crippling the banks.

    In the cram down:

    The first requirement I would assume is verifying that a 25% deduction occurred for the past 2 yrs from the market peak by appraisal, correct? Will the appraiser be required to use REO”s as comparables, since they aren’t now?

    Now to assume, that the home in questioned is going to have only another 3% deduction, after a 25% deduction with nothing changing in the market, is just like stating if you sell your house within the next 10 years over this new loan amount, all profit goes to the bank.

    (Best scenario—$325000 current value minus 1/3 of the 25% decline for the next 3 years, then a 1% increase for 7 yrs) We both know the market will not return to peak nor have positive returns for many years, the best is a 1-2% increase after “bottom and stagnation” is reached.

    Personal reason–I don’t see leaving negiations up to the banks to solve the problem, obviously based on past actions, they are going to do what is best for them. HEX, the modifications to date including the governments.

    Again, I state it will be negioations, example:
    Bank—“look borrower ABC Bank loaned you $425,000. and you can really afford it, we are offering to reduce the principal balance halfway but increase your rate for the remainder of the loan ,or reduce your interest rate on the entire balance, or reduce your payment by extending the terms, which one do you want?”
    Borrower-“No, my house is underwater, I need you to reduce my principal down to the current value, just like the recently passed cramdown bill states”
    Bank- “No the only way, you get the full cramdown is if the courts decide in your favor but you have been current up to now, so you can afford it. Take it or leave it. Okay you don’t want it, lets go to court and see what you end up with”.

    FEAR FACTOR– how does this help the underwater homeowner that is paying?

    Unless the courts are prepared to handle roughly 11,000 petitions A DAY for the two years you stated on just half the mortgages that are underwater.

    (52 million homeowners with a mortgage, roughly 15-20% are close to or already underwater,MORE TO COME WITH THIS PLAN, if only half apply based on ” the income formula” and other conditions, due to fear of those conditions or formulas (you will be excluding the underwater homeowners that can pay mostly from this situation) Remember almost half of the current underwater homeowners represent the current deliquencies, 6.43% quoted and rising.

    If your formula is any way based on incomes or lack of additional assets or debts for current homeowners,it is better to walk.

    The only group, I see this helping is the deliquent homeowners and the less they make the better for them.

  310. In other words, it is more like the National Recovery of 2008, that taxpayers paid 300 Billion on and the most recent Emergency Stimulus Act of 2008 for 850 Billion which included TARP.

    We the taxpayers have spent the first $300 billion for a program very similiar to the cram downs proposed- which was useless by the way.

    And then $850 Billion Dollars which also was useless. I know we still have $350 Billion left.

    All this money spent without addressing and correcting the two biggest issues:

    1- due to the banks underwriting and programs, housing prices exceeded incomes, when programs were withdrawn a majority of borrowers could no longer qualify to purchase home at the price reached and the current homeowners couldn’t afford the payment changes and/or have the ability to be refinanced.—–unaffordability

    2-as soon as the subprime borrowers could no longer substained the new payments , defaults and REO’s increased by 3 fold, reducing values.
    For as long as there are REO”s , values will be falling, negative equity.

    How much is this Bill supposed to cost the taxpayer?

    We are already covering CITI, AIG, FNMA, FREDDIE and did I forget anyone’s losses?

    My plan doesn’t cover any of these losses, except if it is a foreign country only up to the point of total principal return minus any interest paid already.

  311. Susan,

    “If you put in charge any member of a bank, or even for that manner Congress, you will get your above scenario’s, total chaos, I believe you called it”

    Even in your plan this is required and besides due to current laws it would have to be anyway so it is a moot point.

    “There is nothing there that states stablization of the market, values stop declining because of ????, nor fairness with the defective mortgages”

    Because people are now assured that they can afford to stay in what is “THEIR HOMES” and the majority far and away will make sure that doesn’t ever happen again with whatever it takes. Its called America!

    “In my plan, ALL homeowners who are underwater would be entitled to a principal reduction, if they are current (no moral hazard, covers the no income loans, covers the high ratio loans, covers the adjustables, covers even the option pay arms, covers homeowners who added debt after purchasing the house) One formuala- appraisal done by a roster and new mortgage issued by a roster. If they are deliquent, they would have to qualify with proven income at 33/41%, or be foreclosed on. Formula-appraisal done by a roster, new mortgage issued by a roster, no conflicting interest”

    You can’t throw a blanket over this and think it will solve a damn thing. Your approach is save everyone, but the reality is many need to be foreclosed upon, so they must go. As you say “ALL are ENTITLED” Please… Your entitled if and only if you can prove you can pay at the new and couldn’t pay at the old… PROVED!!!

    “The banks loss is taken at the time of the refinance, 3 x the loss, it is replaced with a level 1 mortgage that they made money on, it is not crippling the banks”

    My plan moves performing paper onto L1 and takes it from L3 and records its losses.

    “The first requirement I would assume is verifying that a 25% deduction occurred for the past 2 yrs from the market peak by appraisal, correct? Will the appraiser be required to use REO”s as comparables, since they aren’t now”

    Nothing has been determined as of yet so I can’t answer that question. My guess however would be that it will be totally fair given the parties present.

    “Now to assume, that the home in questioned is going to have only another 3% deduction, after a 25% deduction with nothing changing in the market, is just like stating if you sell your house within the next 10 years over this new loan amount, all profit goes to the bank”

    Not sure what you are trying to say here? NEVER does all profit go back to the buyer until the terms of that specific workout are reached. Lets not paint a picture with a broad brush Susan.

    “(Best scenario—$325000 current value minus 1/3 of the 25% decline for the next 3 years, then a 1% increase for 7 yrs) We both know the market will not return to peak nor have positive returns for many years, the best is a 1-2% increase after “bottom and stagnation” is reached. Personal reason–I don’t see leaving negiations up to the banks to solve the problem, obviously based on past actions, they are going to do what is best for them. HEX, the modifications to date including the governments”

    I do not see the model arriving at the best case scenario so I have no comment on that. We both cannot tell the future except for a logical small degree based on current conditions. I hope we have as a people been able to do that small task.

    “Again, I state it will be negioations, example: Bank—”look borrower ABC Bank loaned you $425,000. and you can really afford it, we are offering to reduce the principal balance halfway but increase your rate for the remainder of the loan ,or reduce your interest rate on the entire balance, or reduce your payment by extending the terms, which one do you want?” Borrower-”No, my house is underwater, I need you to reduce my principal down to the current value, just like the recently passed cramdown bill states” Bank- “No the only way, you get the full cramdown is if the courts decide in your favor but you have been current up to now, so you can afford it. Take it or leave it. Okay you don’t want it, lets go to court and see what you end up with”

    See that is where you lose traction Susan. In my proposed approach I do not allow for strigent behavior (a spread) and their is never a firm one excact answer.

    “FEAR FACTOR– how does this help the underwater homeowner that is paying”

    Reducing principle and changing terms to more favorable interest rates has a way of doing that. Its called a performing peice of paper. Current, up to date, paying interest first which is normal, a good loan. An afordable loan to the family and with caveats determined upon their specific situation, but within overall guidelines as well.

    “Unless the courts are prepared to handle roughly 11,000 petitions A DAY for the two years you stated on just half the mortgages that are underwater.
    (52 million homeowners with a mortgage, roughly 15-20% are close to or already underwater,MORE TO COME WITH THIS PLAN, if only half apply based on ” the income formula” and other conditions, due to fear of those conditions or formulas (you will be excluding the underwater homeowners that can pay mostly from this situation) Remember almost half of the current underwater homeowners represent the current deliquencies, 6.43% quoted and rising”

    You are making this way too complicated. Flexablity by homeowner and by region will set the ratios.

    “If your formula is any way based on incomes or lack of additional assets or debts for current homeowners,it is better to walk”

    This is not a step approach.

    “The only group, I see this helping is the deliquent homeowners and the less they make the better for them”

    It is actually meant to help all families across America.

  312. Susan, you said:

    “My plan doesn’t cover any of these losses, except if it is a foreign country only up to the point of total principal return minus any interest paid already”

    Well I think we just figured something out. Replace Foreign with United States Citizen and you may have me in your corner…

  313. Stu:

    Then you should be in my corner, the exception is for a foreign country that invested in one of our mortgage backed securities to be paid back full principal minus any interest paid.

    Capitalism is the USA is the profits and losses.

  314. Stu:

    I believe you are right, that our government is looking to throw more money uselessly at the housing crisis.

    According to your responses, Yes I would have the government involved with passing the mandate of :all underwater mortgages will be eligible to be refinanced to the current appraised value, the refinances would be done by the existing banks but reviewed by a separate entity to ensure fairness and one set of rules/guidelines are given to all (current/deliquent).

    Using one date, ensures that every homeowner is treated fairly in their “anticipated” principal mortgage reduction. (if values continue to decline, the homeowners who are done first receive the least reduction, similiar to the current modifications)

    If you truly want to correct the housing industry, there needs to be a blanket answer That saves more than the 6.43% of the current deliquencies and rising, and prevents the WALK-AWAYS.

    Not to be left up to who is the better negioator, the bank or the homeowner, just like the current modifications. And then if that does not work, go to a bankruptcy judge, who according to your own words:

    You are entitled if and only if you can prove you can pay at the new and COULDN’T pay at the old…PROVED !!!”

    To me that means if you can pay your mortgage but are underwater, to bad, the government nor the bank want to change you from a “good” loan.
    Moral Hazard City or just walk away if you are underwater.

    I hope I am not reading your responses correctly, that all underwater homeowners are eligible for correction with a standard formula whether current or deliquent, with the benefit given to the current payers.

  315. Stu:

    That last line should be

    BUT that all underwater homeowners are eligible for correction with a standard formula whether current or deliquent, with the benefit given to the current paying homeowners.

    But I have to tell you that is not the way I read your responses. It certainly sounds as if the blanket that is being thrown is only at the deliquent borrowers.

  316. it’s the obama way! distribute wealth!

    Again, where’s my 50K bailout, so I can go buy a home for the good of the country???

  317. ex owner

    If I remember correctly, you went thru the foreclosure process but moved out as soon as you received your notice of default, waiving your rent free period according to your post. There is no re-imbursement, but remember you wouldn’t have received a notice of default if you were paying and it was your decision to move earlier than required.

    I am sure it was only the beginning of the cycle that you were caught in but unfortunately there will be other homeowners caught in the same cycle due to :
    not having enough income to qualify for the home at the reduced value, but they should have remained renters. (I don’t know if you fall into this group or not)
    or
    being unemployed, they will also lose.(again, I don’t know if you fall into this group either)

    My wishes (changed from prayers, since that isn’t correct anymore) go out to you and your family that your life improves to your liking.

    BUT what my plan and some others are trying to accomplish is for the homeowners who are paying their mortgages to retain their house and long term investment, with a benefit to SOME homeowners who aren’t but not all.

  318. Stu:

    I understand that homeownership with mortgages are down to 46 million homeowners, with about 10% of them deliquent and another 10% current but underwater. (foreclosures decreased the number, I understand from 52-then 50 million quoted previously )

    That equals 9.2 million homeowners are basically underwater and how did this happen? Whose fault is it? For the increase and the decrease?

    You stated you liked to debate with me since I was logical, and I like to think so. More importantly, my friends will tell you I actually listen to other peoples view when given and re-evaluate my decisions if needed. I believe that is called open minded.

    Please explain to me how forcing people to go the route of having to do a bankrupcty 13 versus having a blanket goverment mandate aids the average United States citizen? or the housing industry?

    In my opinion, the government and the banks are still playing the number game, so many won’t go thru with bk 13 and so many will just pay anyway, sure some will walk etc.. It all looks to be based on numbers what benefits the banks in the short run.

    As I stated, I will listen and respond accordingly.

  319. When I mentioned this discussion to my cousin, his reaction was: Where is the reward for people who have kept paying their mortgage as they agreed to?

    So, how about this: We don’t tell people (as my mortgage company has told me) that “if you want to discuss a modification you need to miss a couple of payments and then we’ll talk with you.” True statement. Instead, we look for people who are current on their mortgages and don’t have any late or missed payments (according to my cousin: “those who have been doing the right thing”). We offer them a no-no-no refi at current rates and let them re-refi whenever the rates drop another 1/2%. (no-no-no = no closing cost, no points, no cash back). Forget about the tide – underwater – these people obviously want their homes and they have a history of making payment on time. They should be excellent risks and if they can refi at a lower rate then that should make them even a better risk. I doubt that someone who has been making payments on time for years will all of a sudden stop because their rate dropped.

    This would reward good borrowers. It would help fix the economy also because these people will now have extra money to spend since their rate dropped. This could go a long way towards getting us out of some of the bad mortgages since, if we refi anyone who is current with an ARM we can switch that into a fixed.

    Here’s the incentive part of this: There was just an article in our local paper that all of those ARMs that people thought would readjust way up and kill the ability of the borrower to pay. Well with what Ben B. did and with the LIBOR dropping to 1.4%, the ARMS this year are readjusting DOWN. If I’m a banker and I have a customer who is current on the old teaser rate of 6% and they have been current for 3 years, I might be willing to rewrite that loan for a fixed at current rates 5%. Instead of taking a rate of 2.3% for the next few years.

    My suggestion would also be a very simple process: no need to reassess the house, no need to relook at income. (The bank already owns the loan with that person. Why would you relook at a performing loan?) Just rewrite the terms of the note at a lower rate. This could be done for a total cost of less than $500 (lawyer & filing fee). The bank makes enough so if they eat that amount noone will cry for them. KISS makes it dirt cheap to do this.

    One other note: the article in paper pointed out that even though readjustments in rates were one of the reasons for some of the past foreclosures, the biggest problem to housing is probably going to be unemployment: when you lose your income, making the payments can become impossible. Higher unemployment will equal higher defaults.

    Sorry for being so verbose with this post.

  320. The difference between Chapter 7 & Chapter 13 explained in 1 page:

    http://library.findlaw.com/1999/Nov/1/130531.html

    Since it appears that Chapter 13 was already set to deal with home mortgages, the new proposal would simply modify that feature (bullet 8 (last one on the page above)) and allow the plan to work with a reduced/written down principle.

    But, with everything taken into account, this write down may not be very significant. Judges need to use every dime of income in the plan (“good faith”). So anyone with income is going to be stuck for 3 – 5 years and probably still underwater and probably paying on an overvalued asset. If the homeowner has the income, that’s going towards the plan before there’s any thought of reducing the principle.

    If the plan don’t work, but it’s close, before the principle is reduced, then maybe there’s a reduction in principle (so the banks can collect on the credit card debt?). If it’s going to take too much of a reduction, then I presume, we’re going to see the guy pushed into Chapter 7.

    I haven’t seen the agreement but I’d be willing to bet that THE LIMIT on reduction would be current value of the home. So, if someone tries to do Chapter 13 and even with the write down to “fair market value” the plan does not work, then “hello Chapter 7″.

  321. I got caught up in the Wachovia “Big Spend” that MM wrote about in October. Went thru the Green Earth(what a name) department. Put me on hold for three months waiting to see if they could “transfer” my loan to FHA. I am upside down in an Option Arm. I was told that Wachovia was anxious to get these loans off their balance sheet. I had hoped for a favorable outcome.

    Originally I didn’t get into this loan with the idea that I would refi after a few years. I have a great job(10+ years), make 6 figure salary, thought that it would work for the time I would be in the house.(Until kids were gone, and we downsized). But with recent developments, the down housing and stock market, my income(made up of salary and investments) can’t maintain this type of loan.

    Due to the inflated SoCal housing market, I find that selling is not an option either. So I am stuck with this rapidly deteriorating mortgage, that I can’t support or get rid of. I am current and have made all my payments on time. With the recent appraisal(November), I am about $100,000 underwater, paying the minimum Pick a Pay, thus adding neg am every month.

    I got the word last week that Wachovia could not get it approved, because of Debt/Income ratio. They said that everything else about me was excellent, but FHA has strict d/i quidelines, obviously designed for 80% of the country, without regards to the high priced SoCal market.

    They suggested I contact two other departments at Wachovia, they thought could help my situation. I spoke to the direct lending department first. I guess they are the normal refi department at Wachovia, where they are using all of their money and none from the gov. They said that I am underwater and that no chance in hell they would refi.

    I then contacted the loan mod dept. They said that they were offering nothing for anyone now until Wells Fargo takes over. They did say I could skip three payments if I answered a few questions, but that they only offer one mod a year and this wouldn’t really do anything for my “long term” situation anyway, so I declined that offer.

    So here are my final thoughts about my outcome with Wachovia, and it may apply to all lenders. They aren’t ready to do anything until Obama takes over. They don’t want to use any of their money(principal reductions). That SoCal(and several other areas FL, Nev,etc) are so much in trouble, that nothing presently will help the people in those areas.

    Until the government designs a program that will work for these areas, or the banks are forced to come up with something… there will be several areas of the country that will become slums, filled with empty houses and transient squatters…or they will become Renter States with the lenders now becoming landlords.

    Or with these Option Arms, maybe the banks have been landlords all along?

    I just want to warn others who are trying to refi their loans in these areas. As far as my experience goes, nothing is going to happen with these present conditions. It was just a waste of time, that toyed with your emotions, and left you unsettled and deflated after the whole “run-around” experience.

    Good luck to the others out there that are trying to come up with their own solution to this mess. Don’t get your hopes up though, and expect a positive outcome. It seems, that pipedream is far far away.

  322. Steve:

    “One other note: the article in paper pointed out that even though readjustments in rates were one of the reasons for some of the past foreclosures, the biggest problem to housing is probably going to be unemployment: when you lose your income, making the payments can become impossible. Higher unemployment will equal higher defaults.”

    Banner-on-top-of-page for Steve. Home run.

    And what might be causing all of this ‘unemployment’? People losing their houses or behind on their mortgages both? Or might it be the opposite, as Steve has suggested?

    Absorb and understand this, and you will come to grips with the acerbic truth that the economy is in contraction and as a result, people are losing their jobs and defaulting on their payments because they are already broke. And as a nation, so are we.

    It doesn’t make a G-damned difference whether a large percentage of these folks get a ‘private’ bankcustomer mod, government cram-down or any other sort of remuneration for their debt-load. When the source of income dries up, there ain’t nothin’ to pay with.

    And so with that, we take a look up the next rung of this rickety economic ladder to see why there is so much unemployment that in turn is un-enabling people to make their payments:

    The Consumerism economy is Over. That is why. And every single ‘industry’ that was spawned by the phony economies of borrow & spend, fostered by artificially low interest rates, is now coming unwound as there is no more disposable income to fuel them. Subsequently, people employed in these industries who own or once owned homes, are now out of an income stream. The unemployment carnage has not stopped, nor is it going to anytime soon.

    As a matter of (opinion), we haven’t even begun to see the real carnage of unemployment yet as these once ‘vital’ industries of a consumer-based economy continue to ‘de-leverage’ into the dustbin of phony wealth creation.

    It’s important to understand the sequence of events that led to all this mortgage Bullsh!t, otherwise, you’re simply wrapping yourself around a terminal axle of wonking policy and running numbers that won’t mean squat to a growing number of people who won’t be able to pay – no matter what gets ‘crammed’ down.

    Perhaps the President-Elect’s multi -($Trillion) stimulus plans to repair/replace infrastructure with T-bonds purchased by the Fed will keep a few in their homes, who knows. Personally, I think a return to U.S. based manufacturing would solve a lot of this, but the outsourcing mentality is not yet been purged from the body-politic – yet…

    Peace –

    C.C.

  323. Susan,

    “You are entitled if and only if you can prove you can pay at the new and COULDN’T pay at the old… PROVED!!!

    “To me that means if you can pay your mortgage but are underwater, to bad, the government nor the bank want to change you from a “good” loan.
    Moral Hazard City or just walk away if you are underwater”

    It means if you can show that “IF” when your mortgage resets in 2009 that you will no longer be able to afford the higher payment (your stuck), but you could afford it before. While rewriting the loan to take care of that issue (a 30 fixed note being given), also adjust down the new mortgage to its current appraised value minus XX%.

    “I hope I am not reading your responses correctly, that all underwater homeowners are eligible for correction with a standard formula whether current or delinquent, with the benefit given to the current payers”

    Not exactly but if your going to lean one way or another I think a very conservative approach siding more with those best able to maintain this mortgage after the deal is done makes sense don’t you agree?

    This is not a save everyone in the country approach, but rather a preventative approach. You want and need to shoe a large number being done to garner attention as well as participation. Your best shot at accomplishing that is by phasing it in. So phase 1 only includes certain pools of homeowners, and only certain ones within the various pools will qualify. For example pool A includes buyers current on their mortgage, and making their payments on time and are not behind. They are 10% or less underwater to an area appraised values on non distressed sales within 5 miles. You get the drift I think. The phase 1 release may be 50% from pool A which is made up of the homeowner I just mentioned as well as 30% from pool B etc.

  324. Susan,

    “Please explain to me how forcing people to go the route of having to do a bankrupcty 13 versus having a blanket goverment mandate aids the average United States citizen? or the housing industry”

    You don’t have to go that route unless you or the lender don’t agree to the way the new deal looks for what ever reason. Keep in mind however that the lender and borrower know the rules to play by and each will already sort of know how this will end up when it gets to court. This kind of forces them to be done fairly, but also reduces the BS so people won’t feel the need to take it to court and lenders will want to do the deal preferably without Government involement. That is my thought on it personally anyway.

    “In my opinion, the government and the banks are still playing the number game, so many won’t go thru with bk 13 and so many will just pay anyway, sure some will walk etc.. It all looks to be based on numbers what benefits the banks in the short run”

    Not so because the borrower knows what the deal must look like or they get a favorable ruling in court. Lenders won’t want to do that so they will offer a fair deal (to the lower side I am sure), and if they don’t it will cost them legal bills and they will still have to do it anyway.

    This clearly benefits the homeowners as it should. They are the ones that got the bail out money and they need to use it as it was supposed to be used. It does help the lenders in the long run however due to performing mortgages with all interest being paid up front it will provide the liquidity that is needed for that too continue. They have a note in L1 vs. L3. They have to hold less in reserves because their portfolio ratings are better and they can also borrow at a much lower cost as well due to that fact. Short term they must take immediate losses onto their books and will be still credit impaired for a while longer. This should be ok however because only people who need to borrow and not want to borrow should be asking for loans right now in my opinion.

  325. CC,

    “a return to U.S. based manufacturing would solve a lot of this”

    100% correct. But we don’t make anything anymore.

    At one time, we made steel from rocks and made stuff from the steel that everyone in the world wanted. We gave that away. No one wanted to work in the factory pouring hot iron. Try to find anything that is made in USA.

    We gave away the manufacturing but we wanted all the toys. But what did we have to trade for our wants? We have some natural resources and some agriculture products: wood and beans.

    If we are ever going to become a great country again we need to get back to making things here. Look at what Germany does: it makes things that command a good price. Try to buy a Grohe faucet. We can do quality in this country but instead we are willing to buy cheap knockoffs, made somewhere else, from Home Depot or Walmart. We have spent the last 50 years systematically sending our wealth to other countries.

    We have Corning in Pennsylvania but all our flat panel TVs come from Korea? We can’t make a TV in this country? Solar panels are made from glass – why do we need to buy solar panels from other countries? The water meter in my home is made by ABB – a Swiss country. We can’t make water meters in this country?

    How do we get out of this downward spiral? Obama’s infrastructure rebuild is a start: just like SimCity, you need to start with an infra structure. Then we need to get back to making stuff that we and other countries need. We are smart enough and have enough capability to build stuff and become great again. We need a rebirth of the old fashioned entreprenuerial spirit. We need to listen to the dreamers. There will always be the Thomas Edisons, Alex Bells, Henry Fords, Hewletts, etc. In the right environment, the dreamers can easily create whole industries. We need to stop stepping on ideas or giving them away if we ever want to get back to greatness we are capable of.

  326. Steve,

    “But, with everything taken into account, this write down may not be very significant. Judges need to use every dime of income in the plan (”good faith”). So anyone with income is going to be stuck for 3 – 5 years and probably still underwater and probably paying on an overvalued asset. If the homeowner has the income, that’s going towards the plan before there’s any thought of reducing the principle”

    “I haven’t seen the agreement but I’d be willing to bet that THE LIMIT on reduction would be current value of the home”

    Came up a few days ago. The lender may have to overshoot if when the parameters are tosed into the computer to spit out the range of options it would include the ability to foresee a continued fall in values of the homes in that area. Perhaps a limit of 5% – 15% or something like that. Some just won’t be able to get resolved and will lose their homes. No charity here and those jobless you speak of are simply not eligible. We have other social service programs to deal with thhose folks. We don’t want to be throwing good money after bad. This is a preventative approach as I said and it needs to keep that as its charter.

  327. Stu & Susan,

    The way I see it is that right now, any write down is being done by the lender voluntarily.

    The new agreement that came out this week, is nothing more than a tweak of the bankruptcy law.

    Is there any real write down program out there? If so, who? where?

    Besides discussions like this, is there any serious proposal for universal writedowns that is gaining any headway to becoming reality?

    A real writedown program (something that doesn’t involve BK court) needs to come from Fannie/Freddie first. Any paradigm that they come up with will be followed by BoA, IndyMac, etc. Only then will “real mortgage write down” occur.

  328. Stu,

    “Came up a few days ago. The lender may have to overshoot”

    That came up here. But looking at the bankruptcy laws, I don’t see how this is going to happen in Chapter 13.

    This new agreement that came out this week actually can become a nightmare for modifications in some states. All of the “exemptions” in the various states will be out the window leaving only the federal exemptions.

    I don’t believe that BK judges have the ability to look into the future and take into account something that may not happen. Maybe they can modify the plan over the 3 to 5 years of the plan, but the overshoot I don’t see happening.

  329. When you allow for the judges to do “cram downs” it is with restritions. Those will be contained in the ultimate program and within its guidelines. I have read where talk is ongoing on a “new” deal being developed at Fannie and Freddie, but I have not seen the proposal in writing as of yet. Something is being done however. I suspect it will come out after Obama gets elected.

    To me the reality is that is has to happen. Based on that and what I see, hear and read it certainly seems like a head of steam has pushed it into the limelight and hence it will become a reality fairly soon in my opinion.

  330. Stu,

    Do you have any more information on a new deal with Fannie, etc.?

    Whatever that deal is will become the standard I’m sure.

    But with rates coming down and unemployment going up, we may have a “perfect storm”: those who still have their jobs won’t need the write downs and those without jobs won’t be able to keep the house anyway.

    We’re creating a whole new society of “have nots”.

    One commentator on TV recently said that the 7% unemployment is way too low. When the “I give up” people are added it’s more like 13%.

  331. Steve –

    (and anyone else interested)

    http://www.shadowstats.com

    This site will give you some keen insight into ‘official’ government numbers (CPI, unemployment, U6, GDP, account/trade deficits, etc.) along with comparison charts of the Hedonics, Geometric weighting, ‘Substitutions’ and all manner of other ‘doctoring’ the government has done with statistics since the 1980’s to hide real economic numbers.

    Indeed, those who still have their jobs won’t necessarily need the write-downs, but I suspect they won’t sit idly by either if there is a way to preserve already rapidly-shrinking wealth by way of a reduction of some sort.

    C.C.

  332. So let me understand this Susan:

    – is my problem (or others too) a timing one?

    – Why is it we would help someone today that’s ready to walk away today, but not last month? or couple months ago?

    If you paid up through today, but ready to walk, then you get help with BK/loan mod.

    But if you lost a month ago, two months ago (or even before that) well then you’re screwed, right?

    So let me repeat for the good of the country:

    – where the 50K bailout to people (that don’t own) that want to buy a home today (it would reduce inventory)
    Prices will stabilize when demand is matching/or higher than inventory.. do we not want to turn the economy around?

    btw: if you read my posts, you would see that I’m employed, and paid off other debts, and started saving..

  333. I should have said “started saving again..”

  334. C.C.,

    If shadowstats.com is correct then we have almost 18% unemployment and it’s on a very steep upswing. That number seems a bit too high but maybe not.

    How many of them are homeowners? If they don’t get work soon, there is no write down that’ll be big enough for them to stay in their homes.

    Since 2007, the underground economy has been growing. There are a lot of people out there doing all sorts of cash only/under the table jobs. There are some good entrepreneurs making it all right under the table. They can’t get a write down, they have zero for income to show. They either pay or go.

  335. Susan,

    You want in a matter of few months
    from:
    – (ex) owners didn’t get any help
    to
    – reduce everyone that underwater???

    WOW.. that’s a radical change

    What about you, and other stop making payments, and you might get help.. through loan mod/bk

    And when there’s a lot of you doing same thing.. maybe we can get to your idea and mine:
    – reduce everyone
    – give everyone (that doesn’t own) 50K toward a home, or 10 years tax free.. so they can spend in other parts of the economy.. got it??

  336. In order for the economy to turn around, you’ve got to engage everyone… it’s like a team.. u know? you can’t win a game, unless all team players participate/want to win…

  337. Steve –

    Indeed friend.

    The gentleman (John Williams) and his statistical comparisons are quoted all over the place – blogs, financial TV, investor sites, etc. He’s considered one of the best.

    Here’s the unsettling part in my view: It’s not that we’re going to have a spike in unemployment, followed by a quick rebound. It is that the jobs being liquidated in large part, Will not Return.

    They are jobs from a now-Defunct economy based upon Consumerism and Finance (borrow & spend), or as has been recently been coined: The F.I.R.E. economy.

    Very few see this – yet. We have Structural weakness within our economy, not just superficial ‘segments’ that need fixing.

    If we do not relocate and resurrect a viable manufacturing base again at home – you know, a Mfg. base that mfg’s 75% or more of the stuff you now purchase at Walmart or Target, heretofore made in some far-off East Asian country? Then we can forget about home ownership for the masses for a very long time. We will simply complete our journey started 30 years ago towards the sewer of Turd-world, 2-caste societal status.

    And to all those who would say:

    ‘Why in the hell are you talking about something that doesn’t offer a ‘solution’ to our mortgage problem…?’

    Because the mortgage crisis was caused in large part by the economic ‘attributes’ previously mentioned.

    A major standard-of-living Shock is headed our way and unless we are prepared to dig our way out by way of making stuff here, to export over there, so we can have a vibrant middle class with viable income to purchase viable homes at viable prices that only a Viable economy can underpin, we can FORGET ABOUT IT.

    Peace –

    C.C.

  338. CC, Steve

    I thought we all already knew this, no? Aparently not.. If not, go see the movie:

    http://www.youtube.com/user/IOUSAtheMovie

  339. ex_owner_now_renter:

    We do.

    Great movie.

    Good plug.

    Those who haven’t yet, should take a gander at this film. It will make clear to many, what has been muddled and distorted about our economy, as well as why we are at where we’re at wrt/the mortgage crisis. Before one can come up with a lasting solution, one must understand how we got here in the first place –

    C.C.

  340. Okay. Here’s a little Middle Class math for all of y’all.

    Back in 2001 the median home price in my market was $125,000.

    A prudent borrower would have saved 20% or $25,000. Mortgage $100,000. My salary at the time was $45,000. Price-to-income ratio: about 2.22. Perfect.

    Flash forward to 2006, five years later. Median home price $235,000, up 53%. Prudent 20% down payment now $47,000. My salary at the time? $50,000 (NOT up 53%). Price-to-income ratio: 4.7

    Game. Set. Match. This is what 99% of the Middle Class is dealing with. Until the price-to-income ratio falls (wages up—hahahaha or prices down), home ownership is dead.

  341. Steve,

    “But with rates coming down and unemployment going up, we may have a “perfect storm”: those who still have their jobs won’t need the write downs and those without jobs won’t be able to keep the house anyway”

    Anyone that qualifies for a write down can use it or they wouldn’t qualify. If you lose your job and go on unemployment for 26 weeks after your severance runs out in 6-12 weeks or so, and you still have not found work then that is a shame. It has absolutely nothing to do with this proposal and the possible effects of it having or not having a chance of working. People lose jobs everyday, but then they get new ones. Those situations you deal with in life and while the number will increase, it is part of life, and people will deal with it.

    “We’re creating a whole new society of “have nots”. One commentator on TV recently said that the 7% unemployment is way too low. When the “I give up” people are added it’s more like 13%”

    I couldn’t agree with you more!

    In regards to unemployment many use the U6 (rather than the official U3) figure as the real unemployment number. That stands at 13.5% currently. The U6 also counts the people that want a job but have given up, people with part-time jobs that want full-time jobs, and the people who dropped off of unemployment because their benefits have run out. The official U3 number does not.

    In regards to the have not’s, we are witnessing entire generations go from middle to upper middle class all the way down to lower middle class to lower class in a very short period of time. A huge chunk of 65 and older folks and also a pretty good size chunk of 18-30 year olds. The younger due to over leverage and the older due to the importance of their home equity on their retirement. Principle write downs help in both of these areas the most and they is in my opinion what society needs right now and not to re-inflate anything but rather just to survive so to speak.

  342. CC, I guess I should not have read them one at a time as I see you addressed the unemployment issue.

    I totally agree with you on the future of the economies which is why I say something needs to be done to slow it down from falling so fast so that we can get a better handle on things. With the jobs not returning, and I agree they will not, we have some work to do to get prepared. I agree a manufacturing base must return and quickly. Massive tax breaks will enable business to do so and not only increase those that will, but perhaps speed up those decisions as well.

  343. Average Jane, you have hit the nail squarely on the head. Principle write downs do this through foregiveness of debt, rather than allowing the market to do it through foreclosures. One is far more damaging to society than the other.

  344. Everything is intertwined. People with jobs and income create demand and people with jobs satisfy supply. Jobs are the most important cog in this wheel.

    There are different ways to create jobs. I am a small business owner: a one-person shop. I’d like to employ someone. I can’t afford it because of the cost of health care/workman’s comp insurance. So I stay small.

    GM was talking about their workers making $70+/hour. They were only seeing $28/hour and most of the rest was going to health care.

    So, to fix the jobs, let’s redo the whole health care system. Here’s how: We break the health insurance system into 3 parts. The first is “well care”: annual physical/blood tests/mammagram/etc. This will cost next to nothing. People could afford this coverage. Part 2: Limited sick care: draw a limit in the sand: $50K, $100K whatever. (My insurance company is willing to give me $50 worth of medical insurance on my car for $25/year.) If there’s a limit to what the policy will pay, the premium should be affordable on any salary. Part 3: the feds or the state government needs to take over: use medicare that has a 4% admin cost as opposed to some of the health care companies that get 40%. The insurance companies are afraid of the Terri Schaivo cases where someone is in intensive care for 10+ years.

    If that sort of fix for healthcare comes in, people who want to hire people but don’t because of healthcare will now hire people.

    Look at the number of people who can only get part time work. Is it because the employer can not give that person benefits if they work part time? You bet it is. It’s cheaper to hire 2 parttimers than 1 full timer. You get the work done and don’t pay benefits and let the taxpayers pay for it.

    There are going to be you out here who are going to jump on this as socialized medicine. That’s what we got now with the parttime workers. We’re going to pay anyway and we are paying. If we say, ok we’re paying anyway so we might as well get a benefit out of it (jobs) we’ll at least share in the wealth instead of McD’s making all the wealth by dumping the health care of their parttimers on us.

  345. Stu,

    Your insistence on bailing out underwater homeowners is misguided and flat wrong in a national economic sense. Average Jane has it right with the income to mortgage/house price ratio and that prices have further to fall – but you would rather have me (a taxpayer) fund the drop in the house price thru principal reductions backstopped or directly funded by the Feds rather than make the banks or the actual homeowner who took the risk on fund the drop.

    Put your societal and ethical claims aside – if you overbought, for whatever reason, you have to pay the price.

  346. JJ, we are going to default on the federal debt anyway so why not stick it there? That is what makes the most sense.

  347. We are still in the too early stages maybe in this meltdown. A lot more suffering might be required to bring about a consensus among those thinking there hasn’t been a sufficient price paid for the mistakes made.

  348. Hello all,

    If we let the banks take the loss as should be in Capitalism, call it a recall of defective product creating negative equity, would you still be adverse?

    It doesn’t cost us, taxpayers 700 Billion nor the over 7 TRILLION DOLLARS we already guaranteed, provided or gave to the financial sector. WE, the taxpayers actually get the money back now in this plan and the SYSTEM still remains stable.

    THE FINANCIAL SECTOR TAKES THE LOSS TO THE PRODUCT THEY CREATED WHICH IS CAUSING THE FORECLOSURES AFFECTING MAIN STREET.

    In my plan, the banks are able to take up to 3 times the monetary loss on their balance sheets to offset the “mandated” loss to market value, ensuring solvency, while reducing the principal to every underwater homeowner to market value, no one gets a free ride.

    This doesn’t hurt the citizens of the USA,(including the homeowners) it helps.

    Average Jane:

    You stated the median prices for 2001 and the peak, not what they are now? Please advise?
    Also what state? And the state’s median salary?

    It appears to be in line with the National increase in prices, is it in line with the national decrease of approximately 30%? If so, that would make it $164,500. now, under my plan your area would be reduced to $146,875. then as the median value of the area

    Thank you in advance for your response.

  349. JJ,

    “Your insistence on bailing out underwater homeowners is misguided and flat wrong in a national economic sense”

    That is your obvious opinion, but I must agree to disagree with you. I think it is entirely the correct thing to do if you want to get a floor under prices and limit foreclosures from continuing to take place at such a rapid pace.

    “Average Jane has it right with the income to mortgage/house price ratio and that prices have further to fall”

    I agree totally, and prices will fall further in my opinion.

    “but you would rather have me (a taxpayer) fund the drop in the house price thru principal reductions backstopped or directly funded by the Feds rather than make the banks or the actual homeowner who took the risk on fund the drop”

    No, I would rather have the lenders fund the drop through principle write downs. Who by law today are already backstopped by the Government (FDIC). This just removes Government from the equation thus saving tax payers from further footing the bill as they have so far from what I can tell. In what should be a temporary order, allowing judges to force the lenders to do it in cases where they are not meeting the restrictions / guidelines set in advance, I think is a good idea.

    “Put your societal and ethical claims aside – if you overbought, for whatever reason, you have to pay the price”

    I didn’t overbuy and I will get nothing from this if it takes place. 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. 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. 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. 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.

  350. 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 –

    C.C.

  351. 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.

  352. 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.

  353. 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.

  354. 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.

  355. 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.

  356. Susan, and your plan.. you said

    “THE FINANCIAL SECTOR TAKES THE LOSS TO THE PRODUCT THEY CREATED WHICH IS CAUSING THE FORECLOSURES AFFECTING MAIN STREET”
    .. 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..

  357. “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!!!

    C.C.

  358. 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.

  359. 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.

    –Sigh–

    Better days are ahead, we all hope.

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

    http://www.cnbc.com/id/28638551

    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.

  361. 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.

  362. 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.

  363. 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.

  364. 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?

    THERE WILL BE A ‘BAIL OUT’ BUT AST WHOSE BENEFIT AND WHOSE LOSS?

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

  366. 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.

  367. 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.

  368. 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!

  369. 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!!!

  370. 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.

    http://www.cnbc.com/id/15840232?video=1009538752&play=1

    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

  371. 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).

  372. Thanks Stu, Steve and Andy_S!

  373. Thanks Stu, Steve and Andy_S

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

    mortgagereliefformula.com/recourse/

  375. “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.

  376. 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!

  377. 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!!

  378. 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:

    http://www.pr.com/press-release/123522

    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.

  379. Stupid is as stupid does…

  380. 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.

  381. 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.

  382. 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.

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

    http://apnews.excite.com/article/20090125/D95UAMHO1.html

    “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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