WaMu’s New $1 million 5-year 1% Balloon Loan (mod) – $878 Per Month!

Posted on January 7th, 2009 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

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).

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.

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.

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.

143 Responses to “WaMu’s New $1 million 5-year 1% Balloon Loan (mod) – $878 Per Month!”

  1. Susan Day Minerly

    Thanks for the input.

    Let me explore the differences between our ideas using the example on The American People’s Fix site.

    Current loan balance $250,432 / 240 payments = monthly payment $1043.47
    Loan balance will equal current market value $175,000 in about 72 payments or 6 years.

    Your proposal
    The maximum they would reduce the principle to is the current market value of $175,000
    Adjust loan balance $175,000 @ 5.5% interest for 30 years = monthly payment $993.63 $993.63 * 360 =$356,706.80

    So your proposed cram down to market would cost homeowners and investors the difference from $356,706.80 and $250,432.00 or $106,274.80.

    The cram down would have the effect of making all financial institutions insolvent, since most institutions are now bank holding companies and need to meet reserve requirements to be considered solvent. With “The Fix” the capital base of the institution does not change. The financial institutions would have the equivalent of a zero interest bond or note. If the financial institution needed cash they could discount the note to obtain the yield required by the new investor to purchase the note.

    The historic harm done by Government Agencies and Wall Street Firms’, creative or special financing and the undue stimulus these products placed on the real estate market, needs to be corrected. What is being proposed is an orderly correction for their deception.

    Finally, rather than proposing new bail outs, create another false real estate market with artificially low interest rates, giving or lending the down payment to new buyers, discussing how the market needs to be corrected and/or sitting idly by and do nothing, which is each persons prerogative, The American People’s Fix is proactively attempting to help homeowners and investors. If you have better ideas, give of your time and efforts to help correct for the largest deception ever perpetrated on individuals by Government Agencies and Wall Street Firms.

  2. BertDilbert, it’s not just CA. Port traffic is WAY down worldwide:

    http://www.freep.com/article/20090104/BUSINESS07/901040369

  3. John Lorson:

    May I ask who forced you and the other “homeowners and real estate investors” to purchase the homes using the deceptive financing techniques foisted upon you? I assume you were forced at gunpoint to purchase your house for the amount that you paid for it.

  4. Mr. Mortgage,

    Your a Putz. Why the hell should they get to write off principal balances. They borrowed it, they should pay it. If they cant. Repo the damn home and sell it for the real market value to someone who will pay. Somebody tell me what is wrong with everyone. Housing prices are too fucking high. Why is everyone trying to save them. Let them fall to where they are supposed to be. And for the suckers that paid too much. Too bad. The system provides for you to walk away and start over, which you should. Loosers.

  5. John Lorson:

    While I agree with the deception and the manipulation done, and the need for the banks to correct their actions. I personally disagreed with your solution.

    My plan brings all underwater owner occupied homeowner and true investors (not speculators with straw buyers) principal mortgage down to the current appraised value as of _____(one date for all). The bank/MBS takes the loss (capitalism with a goverment mandate for their actions recalling the defective product), the government allows the bank to take up to 3x the loss on their balance sheets/taxes (to remain solvent), and the homeowner receives a NEW mortgage loan at the appraisal value at the prevailing rate of interest( future income for the bank/MBS and the ability to move a level 2 or 3 asset to level 1, reducing the need for the additional capital reserves, also aiding the banks to remain solvent).

    It addresses the downward sliding of housing prices with a stabilization of the housing market, eliminates negative equity for homeowners and unaffordability for some homeowners, while lowering the monthly payments (increasing the homeowners spending/savings ability). It also creates approximately 500,000 or more temporary ( est. 4 yrs) jobs, also boosting the economy and the governments revenue.

    Negative equity and unaffordability are the two main reasons for foreclosures, with unemployment coming in 3rd, soon to be 2nd.

    Your plan versus my plan, you already spelt it out, the homeowner (agreed to) “borrow” money at an interest rate, the interest rate, itself was not defective, it was the agreed upon cost of borrowing instead of paying cash, the mortgage amount BECAME defective by their actions creating negative equity.

    BTW- your example given of a $250,432 loan balance with 240 payments left on it while the property decline 30% is not fair. The homeowner would have had to purchase within the last 3/4 years to have experienced that decline, less time in a bubble state.

    apples to apples:

    loan amount $250432 divided into months remaining of 312 = $807.67 month= bank is paid back $250,432 after 26 years and after the 93rd month (or 7 yrs 9 month) the homeowner owes the CURRENT market value of $174,981.02 at that time.
    The bank takes a loss of over $101,000 in interest if the homeowner sells at that time and the homeowner is left at exactly the same point they would be today, they must rely on inflation to make a profit, not equity building.

    loan amount of $250,432 is reduced to market value of $175,000. New mortgage given of $175,000. at 5.5% with a monthly payment of $993.63 (your fiqures) at the end of 7 yr and 9 mths, the homeowners owes $152,586.65.(equity building) The bank takes an initial loss of $75,432 that could be muliplied for balance sheet purposes times 3, moved the asset to level 1, reduced the capital reserves requirement, earned $70,957 in interest payments for the same 94 months or net loss $4,473 but on paper took a
    $226,296.loss

    Which is the better deal for banks and homeowners?

    Right now, neither of us has to worry though, our government is concerned with deliquent homeowners only, not correcting any wrongs.

  6. I love all this fancy talk. Susan let me put this to ya and Mr. Mortgage straight and in terms you can undersatnd. Your IGNORANT and STUPID. Nothing can be done to stop the slide. This money was loaned to stupid greedy people just like you. I’m glad your underwater you communist and I hope you loose your job just to finish you off.

    Good luck though.

  7. Guy1 Stupid and ignorant back to you. We are all paddling in the same boat. If anyone loses a job, your oar just got longer and wider. Government will just indebt your household and offspring to provide new jobs.

    Enjoy.

  8. guy1 – It’s “You’re ignorant…” not “Your ignorant…”

  9. JAllen…game, set and match!!

  10. Susan, you are still proposing an artificial fix. Housing became too expensive and now it’s correcting. Why do you want to (artificially) keep it too expensive?

    I understand that anyone who is losing equity is not happy. Anyone underwater can walk away (after 9 months of free rent) and be thankful their loans are non-recourse.

    The whining is so loud, I can here it here GMT +6.

  11. Susan, you are still proposing an artificial fix. Housing became too expensive and now it’s correcting. Why do you want to (artificially) keep it too expensive?

    I understand that anyone who is losing equity is not happy. Anyone underwater can walk away (after 9 months of free rent) and be thankful their loans are non-recourse.

    The whining is so loud, I can here it here in GMT +6.

  12. Make that ‘hear it here’

  13. Hey I have a plan, I have noticed that some properties are owned outright and have no mortgage. I think the government should enact a law placing a reverse mortgage on all the owned outright properties in order to pay for the fixing of the mortgage mess. That would place everyone on equal footing. Simply total up how much it is all going to cost and divide that into the total value of owned property and place that % against the existing owned properties. In that way, our national debt will not increase. What do y’all think?

  14. Gee Bert, I don’t think it’s a true “Bailout” unless you use borrowed money.

  15. Susan Day Minerly

    I also checked out the American People’s Fix, and I don’t see a bias towards investors more than homeowners. I think the point they are making is that anyone who bought or refinanced was deceived into thinking that their home was worth more than it really was because of the way the lenders had over stimulated the market by creating demand for housing with their special or creative finaincing programs. A position recognized by a current survey of bankers, the results are from Grant Thornton LLP’s 16th Bank Executive Survey, conducted with Bank Director magazine.

    Here is the link,
    http://www.grantthornton.com/portal/site/gtcom/menuitem.550794734a67d883a5f2ba40633841ca/?vgnextoid=4063a0c6023be110VgnVCM1000003a8314acRCRD&vgnextchannel=a44ecbbdad9c4010VgnVCM100000368314acRCRD

    I do like the principal only payment based on a new 20 year loan approach. It doesn’t reward the lender with more profit on my deal, when I feel their actions jacked up the prices in the first place. But it does get their investment back while lowering the payment to an affordable level for the property owner.

    As I read through the various comments, I get the feeling that a lot of people just don’t get what happened to create the real estate bubble in the first place.

    It’s basic Econ 101, increased demand for housing drove up the price of housing. What caused the increased demand, special or creative financing created by and promoted by lenders for profit, spured on by Wall Streets greed and with the approval of our government.

    Buyers who previously could not qualify were now able to buy a home, without proving income, assets, employment and with no money down. I don’t blame the buyers, I blame the Lenders and Wall Street.

    Susan Day Minerly and John Lorson

    I don’t really care which of you wins the argument. What I do care about is whether someone or some group finaly gets enough traction to represent all of us who put money down, qualified with income and assets, paid for our appraisals and were assured by the very lenders who were approving people on their special and creative loan programs that my home was indeed worth what I was paying for it. We need a loan modification for every one who purchased or refinance since January 01, 2000, done in mass for everyone at the same time.

    I’ve looked at the builders plan which is just a rerun of what got us into this mess in the first place, another special financing deal to put unqualified buyers into the oversupply of houses. I’ve looked at the FHA mod and I’d have to ruin my credit to qualify. I’ve talked to my lender who won’t help until I’m 90 days late. Where is the plan for the person who played the game under the rules and is now being screwed? Any suggestions, I’m open for them.

  16. Bert, I think that plan is already in place. Non-mortgage holders are now the proud parents of twins: sweetly named Fannie and Freddie.

    No paternity test required, simply file a tax return.

  17. Guy1 -There are a great deal of us who purchased homes in a market where it was assumed we were bidding and investing in a market where others would be stretched to make their payments, yes, but still be able to. Not now famous mariachi singer who earns 6 figs.

    In reality, we were bidding against people who had very little probability in making their payment. The end result has home values inflated and a dismal jumbo mortgage market even for those of us who have never missed a payment nor intend to.

    Regardless, I am getting pretty tired of being an aberration. It’s going to be a “cant beat them, join them” scenario if I only see cramdowns offered in bankruptcy situations.

    I am fortunate to have found this thread since it was my broker who just last week glossed over this exact type of WaMu tool and all but recommended it. Thanks for that.

  18. put another way

    Yeah but why am I, “Mr. renter” going to have to put up with the bill down the road for everyone else’s right to own a home or speculate in the RE market? It is not a buyers failure, it is the banks failure to give out the loans to people who did not have the means.

  19. @Benzy and @DaveW

    I have some sympathy for your situation, but I have to believe it’s more than a little unfair for you to ask for a bailout, since I presume you can actually afford your mortgages — you want someone else to cover your (potential) capital loss.

    There are 3 types of borrowers right now that are asking for some sort of bailout:

    1) those that could not afford to buy in the bubble, but found a bank to loan to them. They expected they would be able to refinance or sell or in some other way avoid paying regular payments.
    2) those that could afford to buy, but have since seen their property values drop.
    3) those that have recently lost job, lost wages, experienced a life-changing disability, etc.

    I think you (DaveW and Benzy) fall into case 2 — you can afford the loan, but now think you paid too much.

    In that case, I would like to ask you: At the time of purchase, did you think (considering your income and financial situation) that the price you committed to were worth the house you were buying?

    I suppose you will answer ‘yes’.
    If you now want a bailout, then why is this different than bailing out any other sort of speculator? For example, oil speculators, where the market is much *more* manipulated than the housing market, and fell around 75% in a matter of weeks?

    You can hold for 5-7 years and probably break even, you can default and hope for a mod, or you can walk away and buy again in a few years. In any case, you lose nothing that you did not already agree to at the time of purchase.

  20. […] Other “short-term” boosts can be seen in the mortgage industry. Check out these “mod loans at WaMu“. Balloon loan is right! Hot air is all around us. The bottom line is that the people trust […]

  21. My thought is that ALL Counties should bull doze homes that are boarded up and more than 40 yrs of age! NOT the new homes!!

    I have been on this website a few times recently and am only just now catching on to the irresponsible and illogical espousal of Principal write down by Mr. Mortgage.

    If I was stupid enough (say got carried away by all the rosy propaganda of all the ‘Economists’ and real estate ‘Experts’ read David Lereah in the 2004 – 2006 period) to buy a home as mentioned in this article and I realized my stupidity, after the bubble burst, I would only be too happy to accept the kind of mod referred to in this article!!

    To me it makes the most sense. It gives me a 5 yr breather to be able to figure out things and to take stock at the end of the 5 yr period as to what is to be done.

    1. The big advantage of this mod is that a home is NOT being fore-closed and getting added the inventory at this time.

    2. It is not putting undue pressure on my finances at this time.

    I would say that this kind of mod should be extended to everyone including Speculators and Investors. That would instantly stop the additions to the Inventory!

  22. A Tale of 3 homes on Prosperity Street in a former Boom Town in California!!

    Home 1 – Speculator Joe – Threw in the towel, but still got a $ 2K walkout fee (Jingle Cash) and the Bank sold the foreclosed home for $ 350K. He owns 2 other homes in the area. Did the same with those 2 homes also.
    Documented Income: $ 100K
    Property Purchase Price (Dec 2005): $600k
    Current Property Value (Dec 2008): $350k

    Home 2 – Joe the Plumber – Got a loan mod along the lines mentioned in this article – continues to live in the home!
    Documented Income: $ 50K
    Property Purchase Price (Dec 2005): $600k
    Current Property Value (Dec 2008): $350k

    Home 3 – Regular Joe – Got nothing – contiues to live in the home!
    Documented Income: $ 200K
    Property Purchase Price (Dec 2005): $600k
    Current Property Value (Dec 2008): $350k

    My friend is the ‘Regular Joe’ that I have referred to in this and he keeps bitching that the banks did not bail out the speculator!! His logic is simple, if the Speculator Joe was bailed out, the homes would not have been fore-closed and sold at half their purchase prices!!

    Comments?

  23. TeddyBear,

    You said, “If I was stupid enough (say got carried away by all the rosy propaganda of all the ‘Economists’ and real estate ‘Experts’ read David Lereah in the 2004 – 2006 period) to buy a home as mentioned in this article and I realized my stupidity, after the bubble burst, I would only be too happy to accept the kind of mod referred to in this article!!

    To me it makes the most sense. It gives me a 5 yr breather to be able to figure out things and to take stock at the end of the 5 yr period as to what is to be done.

    1. The big advantage of this mod is that a home is NOT being fore-closed and getting added the inventory at this time.

    2. It is not putting undue pressure on my finances at this time.”

    How does this make any sense to you? If your end game is to be in the best position at the end of 5 years, walk away. Pocket the money you would save on your mortgage for 6-12 months and then rent for less than you currently pay, and possibly less than the modified payment would be. Additionally, at the 5-year point you could be in a position to buy again, and at prices which will likely be around what they are today. And what does a person who is over their head possibly care about the inventory of homes on the market? The only people who should really care about home inventory are people who either own their home outright or are committed to staying the course over the next several years. Neither of these categories are likely to consider the mod offer in this article. Finally, focusing on alleviating “undue pressure on my finances AT THIS TIME” is the mentality which got thousands of people in trouble at the beginning of this mess. Without a serious principal reduction, walking away is the only method which makes short term and long term financial sense to a desperate or severely underwater homeowner.

    By the way, since when is “Regular Joe” bringing in $200k a year?

  24. Partyboy:

    How does this make any sense to you? If your end game is to be in the best position at the end of 5 years, walk away….. Additionally, at the 5-year point you could be in a position to buy again – Really? With my Credit history showing a blown mortgage? Idon’t think so.

    The only people who should really care about home inventory are people committed to staying the course over the next several years – this is the regular Joe.

    Without a serious principal reduction, walking away is the only method which makes short term and long term financial sense to a desperate or severely underwater homeowner – Not if the mod option is available.

    By the way, since when is “Regular Joe” bringing in $200k a year? – In the Bay Area, it is not unusual for people to be earning $ 100K. This regular Joe’s wife also brings home $ 100K.

  25. Jonathan -“you want someone else to cover your (potential) capital loss”

    Wrong. I can deal with my capital loss, even though that loss rests squarely on the shoulders of a mortgage marked that was based on flawed parameters. I want a banks to be compelled to lend money to people such as myself. How that occurs is a the debate. Whether it should happen is not even a topic that should be debated

    Jonathan -“At the time of purchase, did you think (considering your income and financial situation) that the price you committed to were worth the house you were buying?”

    Yes. But I assumed (to my detriment) that banks were lending money to people who had incomes. Under that assumption, a loss in value would be the result of market forces, NOT FRAUD.

    Regardless of whether a principal reduction plan is the solve-all, when someone (renter or not) is laid off, ask yourself why. The answer is because people are not buying your company’s product because so much of their money has been bled into a ponzi scheme that they are unwilling to let the little they have left move into the market.

  26. Let’s put it this way, if I was given the choice, pay $837 a month for 5 years and pray that values some how return to where they were in 2005, or just walk away right now, and find $3500-4000 and then pay $1500 a month for a rental. I’d choose the $837 every single time!

    If you want to suggest that Loan Modifications may end up exploding in 5 years, then you maybe right. But not every company is offering modifications in the same manner as WAMU, and allot can happen in 5 years. I’m not suggesting that values will come back to 2005 levels, but their are a number of things that could occur politically in the next 5 years.

    Bottom line, loan modifications are working for some people. The banks will continue to mine them until they don’t work anymore. The only thing I can see that will kill allot of these modifications is a loss of job. But that would kill any mortgage situation, so the most important way to improve the economy is to stimulate job growth at this point.

    Guess what that means….LOWER THE DAMN CORPORATE TAX RATES!! LOWER INCOME TAXES!!! REDUCE REGULATORY BS! YEP…in other words, you blew it electing Obama!

  27. Benzy –

    That sounds a little like blackmail. People who aren’t in debt should cover people who are in debt to save their own jobs?

    I got laid off in the dot-com burst, and I wasn’t even a tech worker. Should we have compensated people who invested in dot-coms (after all, they assumed [to their detriment] that those companies were worth the stock price) in order to save that economy? No. I got a new job. The economy recovered. It was long and painful but it brought stock values back to what they should have been. Now the same thing has to happen to homes.

    The economy has to correct, one way or another. I understand that giving money (which, in all honestly, is what debt forgiveness is) to underwater homebuyers will soften the blow, but we have to draw the line here! I don’t think “saving” the economy is worth saving people who shouldn’t even be in their homes!

  28. Jonathan,

    Thank you for your sympathy and empathy. I’d like to reply to some of your comments and observations.

    Under current market conditions, I’m stuck in my home. I can’t sell without a short sale or writing a huge check. I can’t refinance to take advantage of today’s rates to better position my finances. I can’t qualify for a loan modification without ruining my credit. I’m five years from retirement and have no hope of getting out of this home without dire consequences for myself and family. For all intents and purposes, my family and I are renters in our own home and will remain so for a very long time.

    And what did I do wrong? Nothing but purchase a home in December of 2005, with the assurance from my lender that the asking price for this home was validated when the lender approved the appraisal. Little did I know that the appraisal was influenced by special or creative financing programs promoted by the lender, which drove up prices in the first place.

    1. At 60 years of age, the loss of my down payment of $64K, is not a potential capital loss, it is very real to me.
    2. My homes value has dropped from $365K to $165K in a little over two years.
    3. Home prices in my area of Arizona are still declining, as banks continue to unload their REO’s.
    4. With a $285K mortgage, I won’t break even for 17 years, assuming the market bottomed today using historical appreciation and my current amortization. I may not live long enough to break even.
    5. I am not seeking a “Bailout” per se. I am seeking permanent relief, not a temporary loan mod that will only put off the eventual foreclosure because it doesn’t address the negative equity position.
    6. And yes, I do fall into your category 2 borrower.

    At the time of purchase, I did think that the price I committed to was valid. Why, because my lender accepted the appraisal on which they based the loan approval. As a consumer, don’t I have the reasonable expectation to rely on the lenders approval of the appraisal to confirm that I was not over paying for the home?

    I could afford to buy and my property value has now dropped dramatically. But why? Could it be that real estate prices were artificially over-stimulated by the lenders promotion of special or creative financing programs. Programs that brought buyers into the market that could not have qualified to buy with out them?

    I am of the opinion that none of us received full disclosure regarding the make up of the transactions that formed the basis for the comparable sales used for our appraisals. If those transactions were financed using special or creative financing, those home values were inflated based on undue stimulus.

    From the LA Times article: Appraiser: Enough’s enough January 27, 2008 Gary T. Crabtree, principal appraiser for Affiliated Appraisers in Bakersfield, said that pressure to inflate values “has been endemic, industry-wide” and is a “significant contributing factor” in many mortgage fraud cases and foreclosures. “Every inflated appraisal during the boom years”, said Crabtree, “became a comparable sale used in other appraisals – and the layers of overvaluations spiraled out of control in some market areas.”

    Who profited from the mortgages? Who had the most to gain from continued escalating home prices? Who made the most money from the sales of mortgage backed securities? Who was motivated to stimulate the market for these gains? Don’t lender’s guidelines for appraisers require them to comment on the financing and its influence on pricing? When the lenders ignored their own published guidelines for profit, isn’t that a problem? It is for me.

    Definition: Fraud in the Inducement n. the use of deceit or trick to cause someone to act to his/her disadvantage, such as signing an agreement or deeding away real property. The heart of this type of fraud is misleading the other party as to the facts upon which he/she will base his/her decision to act.

    If appraisals were based on transactions, where the other buyers qualified by using the special or creative financing offered by lenders who did so for profit, weren’t we induced to buy without disclosure of material facts by one of the parties to the contract?
    Doesn’t this constitute a fraudulent act or at least a deceptive one? The lenders created the loan programs for one reason only and that was to make a profit. The programs were so successful in creating demand for housing that an unsustainable price appreciation spiral resulted. The market changed abruptly when real incomes could not support the house payments when the ARM loans reset and the teaser rates went away.

    I don’t want a bailout. I’m willing to pay the lender back their principal balance. I did sign the note. I’m just not willing to let them continue to profit from the deal when I feel that I was at best mislead into making the purchase when the lender knew that the market value was based on comparables where the other buyers did not and could not have ever qualified without the lenders reducing their guidelines.

    I don’t want to go to court, I don’t want to ruin my credit, I don’t want to be forced to move or into foreclosure or bankruptcy if life throws me a curve, I do want to get back to a positive equity position in a reasonable period of time, so that I can have options with regard to the disposition of my home.

    In my opinion the folks at The American People’s Fix have got it right and an across the board loan modification for everybody to a principal only 20 year mortgage is a valid solution to the real estate problem. And yes I am now a member, what have I got to loose. Has anybody else got a better solution? I would appreciate your comments.

  29. It doesn’t matter what you thought. You gambled wrong, pay the consequences. Had you been wrong in the direction and prices were suppressed rather than inflated, I doubt you’d be on here complaining about wrong it was you were making excess capital gains.

    Nobody has a right to a price or value, just the property you pay for. Your argument could be used to prop up the prices of ANYTHING. Sorry, but no. You are not special. You are just another amateur housing speculator that couldn’t see the forest from the trees. There were many voices proclaiming a real estate bubble. I bought a cheap place instead of a big house, precisely because I realized paying 600k for a tiny 2br was ridiculous(typical for my area in San Diego).

    Not everybody was so delusional to think the housing market was sensible. It’s your fault for not researching more fully.

    Borrowers are not angels, they tried to get over, too. All sides need to take their medicine.

    Don’t call yourself a ‘homeowner’ until you’ve paid the bill. Until then, you are just another shitty person in debt.

  30. @DaveW

    I greatly appreciate your honesty and openness in your reply. Although I’m not certain that a middle ground can be reached, polite discussion seems to be the only possible road to get there.

    I have good news for you —
    Despite what you have heard in the media, you have not lost your 64k down payment. You traded it for a house and a mortgage. You are much more fortunate than the folks that invested 64k in beanie babies, or canadian oil sands, or pets.com.
    You can afford your mortgage, so you have the option to stay in your home. You also have the option to walk away.

    The only thing that has changed is that you will have to hold onto your house for about 7-8 years in order to sell at a profit. Since this is how long most people stay in their homes anyway, you have nothing to worry about. So, as far as *owning* a home, you have a clean bill of health.

    Now, as far as *investing* in a home, you have a negative liquidation value on your asset. That may change in time, but for now, your bet has not paid off. Do not make me pay it off with my and my grandchildren’s tax dollars.

    I sense that you are forming a deep anger at banks, brokers, appraisers, realtors, etc.
    I share this anger with you. I think quite a few banks and such acted greedily and dishonestly and screwed America, and deserve to go bankrupt.
    But they screwed America one EAGER BUYER AT A TIME. Nobody forced anyone to sign a mortgage contract.

    You may feel that you were deceived. In real estate, there is a profit motive to get buyers to buy, so, just as a used car salesman has a profit motive to get you to drive off the lot with an overpriced clunker. Consider that it is entirely possible that the appraiser, realtor, etc. that you worked with were as caught up in the bubble mentality as anyone else — and they had a profit motive. Caveat Emptor.

    I am more than happy to help in any way to extract as much blood from dishonest banks, brokers, realtors, etc, whether through lawsuits, or perhaps even by supporting cramdowns (I’m still thinking it over). However, I do not think their punishment should necessarily be your gain.

    I do draw the line at using taxpayer dollars to in any way pay for your mortgage. I’m curious if you agree or disagree with that?

    Thanks again for your willingness to actually discuss.

  31. DaveW Said:
    January 13th, 2009 5:32 pm
    4. With a $285K mortgage, I won’t break even for 17 years, assuming the market bottomed today using historical appreciation and my current amortization…

    Dave,

    You have given yourself away with point 4. of your deposition. If you are able to write this point, I am assuming you were smart enough to research and understand the ‘historical appreciation’ of home prices BEFORE buying your home.

    Why did you still go ahead and buy the home if you found the price to be way over the historical pricing trend (which would have been obvious, unless you learnt to read trends AFTER you purchased your home)?

    No point in blaming anyone for your predicament. It is just Karma.

  32. DaveW Said:
    January 13th, 2009 5:32 pm

    And what did I do wrong? Nothing but purchase a home in December of 2005, with the assurance from my lender that the asking price for this home was validated when the lender approved the appraisal. Little did I know that the appraisal was influenced by special or creative financing programs promoted by the lender, which drove up prices in the first place.

    WELL, I ALSO RESEARCHED BUYING A HOME IN 2005, NOT IN ARIZONA, BUT IN NON-BUBBLE OHIO AND I STILL FOUND THAT IT DID NOT MAKE SENSE TO ME TO BUY A HOME VS RENTING. I FINALLY BOUGHT A REO IN TEXAS IN 2008 BECAUSE THE ECONOMICS MADE IT CHEAPER TO BUY VS RENT.

    4. With a $285K mortgage, I won’t break even for 17 years, assuming the market bottomed today using historical appreciation and my current amortization. I may not live long enough to break even.

    At the time of purchase, I did think that the price I committed to was valid. Why, because my lender accepted the appraisal on which they based the loan approval. As a consumer, don’t I have the reasonable expectation to rely on the lenders approval of the appraisal to confirm that I was not over paying for the home?

    AS A CONSUMER, YOU NEED TO PRIMARILY RELY ON YOUR OWN RESEARCH AND COMMON SENSE RATHER THAN ON SOME VESTED INTEREST’S EXPERT OPINION.

    I could afford to buy and my property value has now dropped dramatically. But why?

    AS ALL BUBBLES DO. SIMPLE COMMONSENSE.

    Could it be that real estate prices were artificially over-stimulated by the lenders promotion of special or creative financing programs. Programs that brought buyers into the market that could not have qualified to buy with out them?

    SURE THEY DID. BUT WHAT WAS YOUR COMMONSENSE DOING AT THAT TIME?

    I am of the opinion that none of us received full disclosure regarding the make up of the transactions that formed the basis for the comparable sales used for our appraisals. If those transactions were financed using special or creative financing, those home values were inflated based on undue stimulus.

    COMPARABLE SALES DON’T TELL YOU HOW THEY SOLD.

    Who profited from the mortgages? Who had the most to gain from continued escalating home prices? Who made the most money from the sales of mortgage backed securities? Who was motivated to stimulate the market for these gains? Don’t lender’s guidelines for appraisers require them to comment on the financing and its influence on pricing? When the lenders ignored their own published guidelines for profit, isn’t that a problem? It is for me.

    YOU SHOLDA BEEN ASKING ALL THESE QUESTIONS BEFORE YOU BOUGHT THE HOME BUDDY.

    The programs were so successful in creating demand for housing that an unsustainable price appreciation spiral resulted. The market changed abruptly when real incomes could not support the house payments when the ARM loans reset and the teaser rates went away.

    DID YOU NOT KNOW THIS BEFORE YOU BOUGHT YOUR HOME?

    In my opinion the folks at The American People’s Fix have got it right and an across the board loan modification for everybody to a principal only 20 year mortgage is a valid solution to the real estate problem. And yes I am now a member, what have I got to loose. Has anybody else got a better solution? I would appreciate your comments.

    THE BETTER SOLUTION IS THE WAMU MOD THAT THIS THREAD IS ALL ABOUT. DON’T REWARD STUPIDITY AND GREED. BE HUMANE AND GIVE A 5 YR ROPE TO HANG YOURSELF!

  33. BertDilbert Said:
    January 10th, 2009 11:47 pm

    How do you sell your house when it is 200k underwater?

    BERT, I HAVE DEALT WITH THIS VERY ISSUE IN A DIFFERENT FORUM. FIRST WE NEED TO KNOW WHY IS THE HOME UP FOR SALE. 90% OF THE TIME, I WOULD SAY, IT IS BECAUSE THE OWNER WANTS TO MOVE FOR WHATEVER REASON. SINCE THE MISSION HERE IS TO PROMOTE HOME OWNERSHIP, I PROPOSED THAT THE NOTE THAT HAS BEEN DRAWN UP ON THIS PROPERTY BE TRANSFERRED TO THE NEW PROPERTY THAT THIS ‘MOVEE’ IS GONNA BUY, WITH A WAMU STYLE LOAN MOD.

    My guess is people do not have enough money to list their house for sale.

    THIS WILL BE TAKEN CARE OF WITH MY ABOVE PROPOSAL. IF YOU JUST WANT OUT WITHOUT WANTING TO BUY A NEW HOME, WELL, U STUCK WITH A FORECLOSURE. TOO BAD.

    This is going to become a larger issue as unemployment continues to climb, people cannot leave state to pursue new jobs.

    IT AIN’T NO SILVER BULLET, BUT MY PROPOSAL WOULD TAKE CARE OF THIS IN THE BEST POSSIBLE WAY.

    If they rent out the house, they only get half the house payment. Jobs outside CA will likely have lower pay scales, so this becomes a big issue!!!

    WAMU STYLE LOAD MOD WOULD STILL HELP IN THIS SCENARIO, AS THE RENT WOULD BE MORE THAN THE HOUSE PAYMENT FOR AT LEAST A COUPLE YEARS AND THEN LEVEL OFF.

  34. Tim Jones

    It is very hard to hide class, but somehow you have overcome that obstacle.

    I am so proud of you for your superior intellect and insights into the market and hope you enjoy your cheap home in San Diego for many, many years.

    I am hardly an amateur housing speculator or a gambler, nor am I delusional. And as far as being special, thanks for the flattery, but I and 600,000 other Arizonans, who purchased homes in the last 8 years, now find ourselves underwater. Can we all be amateurs, speculators, delusional or gamblers? Or was this a case of mass hysteria? If so it happened all over the country over a 6 year period of time.

    I do agree that “Nobody has a right to a price or value”, however I do think we have a reasonable expectation to have a level playing field without undue influences on the market.

    DEFINITION OF MARKET VALUE, BASED ON THE FANNIE MAE GUIDELINES, FROM MY APPRAISAL STATES, : “The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

    *Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment.”

    I purchased my home as a primary residence for my family to live in. This is my sixth home purchase in my lifetime, my first at 21 years of age, each of which I have held for about six years. Nothing speculative in those purchases, or selling decisions, just moves as my family situations changed.

    I bought a 5br, 3.5ba, 2538 sq ft, tract home in Buckeye, Maricopa County, Arizona. Hardly a mansion, but adequate for our needs as my wife an I run two business from the home and have a handicapped son of 46 who lives with us full time. So basically I have a 3br home for my family and use two of the bedrooms to operate our businesses.

    As far as research is concerned, I did observe and follow the market trends to the best of my ability at the time and guess what, home prices were going up admittedly faster than normal. At the same time, based on the cost to build per square foot, which was running at about $125 per including the lot, the price was in the market. By the way my hazard insurance company still requires me to insure the home currently for a replacement cost of $380K, as that is what it would cost to re-build if it were to burn to the ground.

    What I could not have researched was that the home prices were over-inflated because of the lenders promotion of special or creative financing. Had that data, i.e.: Number of home sales to buyers who put no money down, qualified with out having to verify income, assets or employment, or have any reserves, whose loan program was based on an ARM or Option ARM with a low temporary teaser rate, been disclosed maybe we all could have seen the problem and made our decissions accordingly.

    However, those material facts were not available and were not noted, in violation of the lenders appraisal guidelines as detailed above, as influences on the home prices of the comps used in my or any appraisal.

    I have been and continue to be a homeowner as I have paid the bill for homeownership for the last 39 years. I was going to ask you to send me some toilet paper but I’ve decided to use my appraisal for the task instead.

    Tim, a word of advise. Often times it is better to be thought a fool, rather to open ones mouth and remove all doubt.

  35. Jonathan and TeddyBearNeil

    Thank you for your well thought out and considerate comments.

    I agree that this is a difficult and challenging time for all of us. It is only with open discussion do we have a chance at solving the problems and the far reaching implications of doing nothing is far worse than attempting to solve the problem.

    Jonathan, Not sure I want a five year rope to hang myself. That’s kind of like bobing my dogs tail a half inch at a time so it doesn’t hurt to much. :<)

    I totally agree with you that there should not be any taxpayer involvement in any form to correct the problem. I would also state that I am a grown up and do accept my situation, and no one held a gun to my head to sign the loan documents.

    That being said, if as I have postulated there were undisclosed undue influences in the market created by special or creative financing there is a certain responsibility of those who promoted those programs to step up and take their lumps as part of the solution as well. A position I have argued and supported in my previous posts.

    TeddyBearNeil, I think the appraiser is supposed to comment on the comps and the terms and conditions of the sale, if I am interpreting the language correctly.

    I think we can agree that there have been enough articles, blogs and forums that have detailed the nature of the special and creative financing programs to agree that they had an influence on the market. How much is of course up for debate.

    I have looked over all proposals that I can find, from the H4H, FHA streamline and the various loan modifications and none that I find adequately address the negative equity situation in any real or constructive manner. I’ve also looked at the National Association of Realtors and the National Association of Home Builders proposals to jump start the housing market and they are nothing but a re-run of the very programs that caused the problem in the first place. More special temporary interest rates and down payment assistance with reduced qualification requirements to bring unqualified buyers into the market.

    Here is my point. Currently there are 12 million households in the country that are underwater as stated by Mr. Bernanki at a recent housing conference meeting. We have all seen the headlines that indicate that housing prices continue to fall in many markets. So the bottom still seems a long way off especially when you consider the number of 5 and 7 year ARM’s that have yet to reset. I also don’t hear any mention of the 10 yr interest only Fannie/Freddie products which will reset to a 20 yr PI payment at a much higher payment and it’s impact on the problem.

    When these loans reset and the owners cannot refinance because they are underwater, we are in for yet another round of foreclosures, short sales and deteriorating market prices.

    We know from the recent headlines that the loan mods done in Q1 of 2008 resulted in over half of them being back in default in six months. The reasons given included lack of adressing the very real issue of negative equity. Which points out that the current approach is just not viable. Even HUD admits that their program isn’t working.

    If something is not done on a mass across the board basis to stabilize the market, stop the deterioration of home values, eliminate foreclosures and short sales, we are in for a 10 to 15 year period of negative to flat housing market in this country in my opinion.

    In my previous post I spoke about a proposed solution that would take every mortgage issued during the boom from January 1, 2000 to current and convert them to a 20 year, ZERO interest mortgage. I agree that not every area of the country was affected by over-inflation, but using the housing appreciation studies that are readily available those affected could be identified and modified accordingly.

    A simple solution but it has far reaching implications by my analysis.
    1. The resulting principal only payment would be far lower than the current PI payment. This lower payment would all go to reducing the mortgage balance far faster than any reduced interest rate loan mod and would have the additional benefit of providing from the savings additional real cash injected into the household budget that could be used to pay bills, save or spend in the general economy or put towards the mortgage to further reduce the balance. Economic stimulus every month for 20 years.
    2. True the lender would not receive any interest payment, however they would receive in full the balance they lent. I can’t tell you how many investments I’ve made where if I could have gotten my principal back I would have been estatic. The lender could use these funds to lend at todays rates and guidelines, which would open up the market to new loans.
    3. The lender maintains on their books the full face value of the mortgage balance, without write down, cram down or any other negative impact.
    4. The lender does not have the cost of foreclosure, maintaining the home, insuring the home and re-selling the home. A considerable sum of money by all accounts, I’ve read up to 60% of the initial loan value.
    5. If the lender needs to raise capital they can discount the note to produce the yield required to attract a buyer. A practice that is done everyday and much less expensive than foreclosure and related costs.
    6. The State and Federal government would receive increased tax revenues as without interest there is no interest deduction. Tax dollars that can be used to support local and federal projects or provide some income to the loan servicers, all WITHOUT RAISING TAXES or passing on a deficit to our children and their childrens children.

    Every one who is involved becomes part of the solution. The homeowner pays back what they borrowed, the lender gets back what they lent, all without a dime of government bailout money to the bank or the homeowner. No one time “Economic Stimulus” check from our government which we all know would eventually come our of our pockets anyway.

    As a homeowner I would be much more inclined to stay in my home as I can see that the time to breakeven or gain a positive equity position will come in a much more reasonable time. I can wait it out without the WAMU balloon payment noose around my neck. As I don’t see the market coming back and home prices appreciating to adequate levels in five years under the current proposals.

    With the housing market stabilized, home prices will naturally adjust to a level that can be supported by real incomes, especially since the traditional underwriting guidelines have now been re-adopted. With the extra funds in each household budget, the economy will receive the boost in spending needed to get back in gear. Incomes will naturally increase over time and so will home prices as the two have been traditionally in lock step.

    Please take the time to do the mathmatical study on your own situation. Take your existing mortgage balance and divide by 240. Compare that payment with what you are making now. It is simple math to calculate the annual reduction of your mortgage balance. Based on market data for your area, find our what your home is worth and see how long it will take to bring your mortgage balance in line with the market vs your current amortization. I think you will find that the time shortening is significant.

    I would encourage you to take the time to really think about this proposal, it’s not mine but the proposition of The American People’s Fix, found at http://www.americanpeoplesfix.com. So far it is the only one that makes sense to me, seems fair to all parties and does not raise taxes or require government bailout money.

    I’m also sure that it does not take into consideration all aspects and all players concerned, but it may make a good platform to produce an all encompasing solution.

    I look forward to your next comments, observations and suggestions.

  36. Tim Jones, you make a fair point that house prices must come down and not be propped up, I agree on that. But the name calling was uncalled for. Where I agree with DaveW is that the real crime was that the housing bubble should never have been allowed to grow as out of control as it did, the government didn’t even enforce the rules on the books to stop the massive fraud that went on.

    I wouldn’t have a big problem with the WaMu loan mod above (well except for the non-recourse part), as long as there was *NO* possibility that the government could purchase or subsidize the modded loan. That is the real crime going on now with the TARP and the Fed swap facilities. If WaMu/JPM wanted to keep this garbage loan on its books, or sell it to some idiot investor, I have no problem with that.

    Let’s face it, this loan has a virtually 100% probability of default.

  37. In an earlier post I stated that I thought that this loan might work for me. (I can remember that in 1988, it took 5 five years for prices to recover here in AZ and new construction to commence. Too long!)

    I believe that this creation by WAMU DOES have some problems that would keep me from actually going through with it the way it is laid out above. (“VacantHomes”: Where is there any mention of recourse?)

    I am convinced that WAMU’s primary reason for offering this was to prevent their getting the home back NOW. Its a “breather”. I can’t see where there is any sinister, ulterior motive associated with this. WAMU knows that the borrower can walk at any (time absent recourse). WAMU doesn’t need the kind of adverse publicity as seen on this thread.

    I approached WAMU today requesting that they reduce my interest rate to 1%/year for the next two years. I also talked about the need to be able to keep my existing loan in effect (waive the due on sale clause) so that I may incorporate this loan into a contract for deed. Without being able to offer/provide jumbo financing in order to obtain a competitive advantage over the myriads of homes on the market, I see no reason to stay in it. Forty, or so, thousand dollars in capitalized interest is nothing compared to assuming the responsibilities and costs of a vacant home. Let’s see what they have to say. (WAMU has a website entitled “WAMU cares”. There is no mention there of this mod.)

  38. https://www.wamu.com/customer_service/contact_us/WaMu_Cares

  39. From the WaMu Cares website:

    You may be able to repay your home loan using… funds from your 401(k) -account—ask your employer about making a “hardship withdrawal

    You have to respect them for trying.

  40. NEGATIVE POLLYANNA! WAMU WAS THE MOST CROOKED OF THE WHOLE CRIMINAL BUNCH, INCLUDING COUNTRYWIDE! MAY THEY ALL SOON GIVE AWAY FREE HOMES TO THEIR VICTIMS AND ALL OF THEM GO TO PRISON FOR FRAUD ONCE ITS PROVEN IN COURT! THIS IS WHY OUR COUNTRY IS FAST BECOMING A BANANA REPUBLIC!

  41. robbed by WAMU:

    I’ve been waiting for two days for someone to reply or just post. I thought that I had put a halt to a perfectly good thread. Many, out of a sense of courtesy and respect, just bit their tongues and decided that this thread had finally just played out. I’ve sensed before that my favorable experiences with WAMU were perhaps unique. Their in-house sales guy begged me for my business so as to meet his quota. Thus far, other than a couple of suspensions last year of my HELOC over small credit issues, I have had nothing but favorable experiences with them. But, I am hardly their apologist and this thread could use some new blood, etc. Please continue your post! Hammer away!

  42. […] good fighter for the housing truth and colleague, Mr. Mortgage showed a recent WaMu modification loan that transformed a $1 million loan into an $878 monthly […]

  43. […] you are interested, read Mr. Mortgage to learn about some of the “fixes” being employed in the industry – and consider the […]

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