WaMu takes the game of re-leveraging the home owner in order to avoid a default, foreclosure and subsequent credit loss to the next level. Banks can not be left to modify trash mortgages on their own – they do not have enough of a sense of responsibility.
They are acting worse now with respect to mortgage mods than during the bubble years with exotic loans. I have seen many mortgage mods over the past year but nothing I have ever seen is as irresponsible as this mod WaMu recently authorized…Bank of America came close (see link below).
- Countrywide/BofA – A Direct Threat to Borrowers & Shareholders (109)
Posted on September 3, 2008 1:32 PM
DISASTER OF EPIC PROPORTIONS
Mortgage modifications have turned into a disaster of epic proportions. Every where you look, mortgage mod firms are promising things that I do not believe can be attained. Back in the good old days of nine months ago when I became hot and heavy on private sector loan mods, the banks and servicers were actually looking at the entire picture and reducing principal balances when necessary. The home owner or mod company would present a ‘present’ and ‘proposed’ solution to the note holder of which one of the choices was a principal reduction — and many times it was granted.
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.
- Fannie/Freddie – Come Get Your Loan Mod & Pay For Life (81)
Posted on December 17, 2008 1:52 PM
- Mr Mortgage: Actual IndyMac (Exotic) Loan Modification (63)
Posted on December 3, 2008 2:13 PM
MORTGAGE MODS DONE RIGHT
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.
- Mr Mortgage: My Case FOR Mortgage Principal Reductions (124)
Posted on December 14, 2008 1:49 PM
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, Fannie/Freddie, Bank of America and WaMu examples herein.
These I do not endorse in most cases – specifically if they do nothing more than offer a term teaser-rate, extend the term, defer interest or principal, come with large balloon payments etc. 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.
NEW WAMU LOAN MOD – THE 5-YEAR BULLET!
Below is an actual example of a recent WaMu loan mod with a 5-year $1 million bullet payment. This mod takes exotic lending to level I have never witnessed in my 20-years of mortgage banking. This makes a Pay Option ARM looks safe and cozy — and puh-lease do not tell me this is great because it frees him up to spend money into the economy.
Banks offering and borrowers actively accepting this style loan mod will guaranty that the housing crisis stays will us for a long time to come. This borrower will lose his home in 5-years, I have no doubt. That is of course unless his house price goes up 100% AND great, low rate super jumbo money returns to the market so he can refi out of it – then again, many lenders won’t even refi a loan that has had a previous loan mod done.
Property Value: $800k
Note amount: $1 million plus deferred interest
New Mod amount: $1.053 million
First TWO years rate/payment: 1% and $878
Third year rate/payment: 3% and $2633
Forth year rate/payment: 5% and $4389
FIFTH YEAR PAYMENT – THE BULLET: ALL OUTSTANDING BALANCE DUE AND PAYABLE
All rights to future predatory lending claims waived.