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).
- 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.
January 7th, 2009 11:27 am
These loan mods like this are insane. I just don’t see how these $800K houses are going to survive – it wouldn’t surprise me if the states started to bulldoze down these high priced houses just to keep the prices up somewhat (temporarily) – and that won’t work either. The inventory is too large.
Here is an excerpt from my blog post on who can buy a $500K house?
The conventional wisdom is that nobody should buy a house for more than 3X or 4X their income – personally I think 4X is pushing it but let’s use that to do some calculations.
From Wikipedia the breakdown is as follows: 28% of households make $0 to $25K, 27% make between $25K and $50K, 18% make between $50K and $75K, 11% make between $75K and $100K, and 13% make between $100K and $200K and the rest (~3%) make over $200K. There are about 111 million households in the US.
So if we take the 4X rule then a house costing more than $200K (people making over $50K) would only be affordable for 45% of households. Now for a house costing more than $400K there would only be about 16% that could afford the house. That’s a pretty small market – about 18 million households (especially when many of these people do not want to or cannot buy a house for various reasons).
If we take the more conservative 3X income rule then the market for a house costing over $400K is only about 7% or 8% of all households – about 9 million households. That’s tiny when you really think about it.
When I read about California housing and how the houses are $600K, $700K, $800K , $1.2 million, I just don’t understand who is really buying these houses. The whole thing has been a scam.
So if the house note is $1 million and using the 3X or 4X income rule-of-thumb then less than 1% of households could actually afford the house. Game over.
January 7th, 2009 12:01 pm
I think the decline in the value of loan mods is twofold. The banks, through talking to hundreds of thousands of at risk borrowers, have determined that the number one, two and three things they want is a lower monthly payment. $1 million at $848 a month is the holy grail of the low monthly payment. Since these borrowers chose this route the first time around, why wouldn’t the choose it on their second chance?
Now put yourself into the shoes of the private loan mod negotiator. A legitimate one does not charge any upfront fees, only getting paid on the completion of the modification. What are they supposed to do? Tell their clients that they shouldn’t take the deal? A few weeks of that and they won’t be doing loan mods anymore. Besides, the “bad” deal is what their clients want anyway.
As to WaMu, instead of taking a $500,000 loss via foreclosure or a $250,000 loss on a “modification done the right way,” they now have an asset they can mark to $1 million on their books. They can now walk up to the Fed window and borrow against 90% of this “asset” under the appropriate acronym. Once the government has this asset as collateral, it will be much easier to sell that asset to them down the road for the price of the loan, resulting in just a $100,000 loss. In the meantime, they can squeeze a few more bucks out of the borrower as they (the bank, not the borrower) await their taxpayer bailout.
If we don’t force the banks to take the losses via loan mods done right, we as taxpayers are going to take the loss ourselves when the government decides “something needs to be done.”
January 7th, 2009 12:26 pm
redeye,
You have a very strong argument. Can you give any additional detail or sources of information?
January 7th, 2009 12:27 pm
I just want to add that the only thing that changed between the time the banks were reducing principal and today is TARP. Once the prospect of selling these loans to the government at far, far more than they are worth materialized, the principal reductions ended.
Now the banks know that without principal reductions, foreclosures will keep climbing. And rising foreclosures will ensure the government will revisit TARP – the Troubled Asset Relief Program – under a new unsullied name. Then they can unload all these loans and let the government do modifications done right.
The difference? When the bank does principal reductions, they take the loss. When the government does it, we do.
January 7th, 2009 12:31 pm
redeye,
are you Mr. M?
January 7th, 2009 12:41 pm
redeye- Great points but there has to be a limit to TARP and the Fed’s balance sheet. Would the govt/Fed really buy this crap? At some point they have to worry about hyperinfaltion and exploding deficit. Bernanke and Co. are not complete idiots… right?
January 7th, 2009 12:44 pm
Joe Mamma,
I have the same sources you do, Mr. M’s site and a few others that “get it,” not just in terms of residentil real estate, but all asset classes including stocks, private equity, commercial real estate, even racehorses. the values of which were inflated beyond comprehension as a result of the largest credit bubble in the history of the world.
I guess I have an additional filter in that I spent 15 years working in politics so I have a fundamental understanding of how this game is being played. In that time I realized that there is a two-party system: them and us. As usual, we’re losing.
January 7th, 2009 12:44 pm
This is completely nuts. What are they thinking? This kind of loan will certainly default and what kind of asset is it for the lender? I think they call this a ‘level 4 asset’.
January 7th, 2009 12:54 pm
markytom,
Nice response regarding with the household income and home prices.
January 7th, 2009 12:55 pm
HHB,
No, there is no limit. They have the printing press. And inflation is exactly what they want. Home prices w/o inflation will only increase by 1% per year. The real cost of money w/o inflation is prohibitively high. In fact, if Bernanke & Co. were faced with a “gun to their head” choice between hyper-inflation and deflation, they’d choose the hyper. It’s easier to reverse once begun. Once deflation begins, it took WWII to end it in America after 10 years and they still haven’t ended it Japan after nearly 20 years.
Having said that, printing money does not produce inflation if financial institutions don’t lend and invest and consumers don’t borrow and spend. That’s the liquidity trap of deflation.
January 7th, 2009 1:03 pm
Mr. Mortgage,
Kim Il Sung is calling, wants his Juche back.
Seriously you cannot reduce people’s principal based on how bad their decisions are. Reward the irresponsible, punish the responsible.
January 7th, 2009 1:07 pm
I work in the financial industry and can tell you that most people (portfolio managers, traders, ibankers, etc.) are not nearly as smart as they are given credit for. This is largely due to Survival Bias. Bernanke and Paulson are probably no different.
Just think of flipping 100000 coins in the air at the same time. Do ten rounds of this and each time eliminate the tails and keep the heads. At the end of 10 rounds you expect to have about 100 coins that turn up heads in all 10 rounds. (100000 * (.5^10) = 100)
This is really how Wall Street works. Look at fidelity and the big fund companies. They start 20 or 30 new funds a year and at the end of the year most of them have been rolled into others. They are flipping coins and keeping the heads. Then they sell the bulls&%t track record that will never again be attained because it is luck in the first place! The traders and portfolio managers are held up as geniuses when they are more likely than not just lucky!
These are the kind of games Wall Street is playing. It’s just a big casino and every so often they introduce a new game.
definition:
1. Survival Bias: Most researchers start with a existing universe of publicly traded companies and working back through time to test investment strategies. This can create a subtle bias since it automatically eliminates firms that failed during the period, with obvious negative consequences for returns. If the investment scheme is particularly susceptible to picking firms that have high bankruptcy risk, this may lead to an ‘overstatement’ of returns on the scheme.
source:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/invemgmt/testmkt.html
January 7th, 2009 1:12 pm
One more thing, if the traders and portfolio managers are really shady they will manage a bunch of the funds at the same time with the expectation that most will fail and a few will look good. Then they build a track record and reputation to get more money from this nonsense lucky track record.
January 7th, 2009 1:20 pm
We are finally looking at the problem from the bank’s point of view. They make money by lending. That’s it! If the gov’t is buying all asset classes (level I,II,III) does this sub sub-prime esq loan package really surprise us? Not me.
So long as the banks can get the borrower to sign off on the “do not sue us later” predatory lending clause, they win.
January 7th, 2009 1:37 pm
I have always agreed that principal reductions are the only solution. Nevertheless, this is kind of a tempting deal for the borrower so long as the loan remains non-recourse. A mod doesn’t automically equate to recourse, particularly if it is a no cash out mod. Assuming no recourse, this guy is going to save a ton of dough over 36 months. He can bank it and then just stop paying in year 4, live for free for another 9-12 months and further stock his bankroll, then go rent for a few years before rolling his fat bankroll into a new home in 2014 or so, when we should be seeing far lower pricing. Just sayin…
January 7th, 2009 2:03 pm
I want to see a million man mortgage march to the doorstep of the Fed. Redeye hit the nail on the head.
Stu won’t like what I’m saying, but the gov’t has got us where they want us: uneducated, broke / in debt, and complacent.
This country has been drinking the KoolAid for too many years, and now it’s being turned off.
January 7th, 2009 2:19 pm
redeye quotes:
“If we don’t force the banks to take the losses via loan mods done right…”
So, does this “force” involve Uncle Sam and/or the judicial system? Just curious. You seemed fairly laissez-faire in some earlier posts.
January 7th, 2009 2:25 pm
WOW every time i think i have seen the worst Mr. Mortgage proves that it can actually get worse !!!
Kevin is going to pop an eyeball out of his head when this borrower comes back in 5 years saying he was duped and needs a bailout
January 7th, 2009 2:29 pm
This is why we NEED mark-to-market accouting. The present value of this shenanigans-influenced modified loan is about $300k. The calls to get rid of mark-to-market should be roundly denounced.
January 7th, 2009 2:32 pm
MM, it’s called kicking the can down the road. There is also a great hope that inflation will light off in 2011 and save their bacon as the nominal (not real) value of housing skyrockets along with everything else (think 1970’s).
January 7th, 2009 2:33 pm
this is the kind of stuff that starts revolutions…SERIOUSLY !
January 7th, 2009 2:40 pm
Coast,
Good question. For the homeowner, I think it means forcing the bank to choose between taking a 50% share of the equity loss through principal reduction or 100% of the equity loss through foreclosure.
For the government, it means a very clear statement that the Treasury and the Fed will not be buying (or lending against) any assets for more than market value. Market means market no matter how low that value may be.
January 7th, 2009 2:45 pm
Tobby,
That is EXACTLY why the gov’t is borrowing as much money as possible now at 0% from all the stupid foreign central banks. Take as much as you possibly can now and pay it back in the future with dollars that are hyper inflated. It worked for the past for decades so lets just do it again. The problem is the foreign banks are starting to wise up and they no longer need the oh so precious “American consumer”. We don’t make anything in this country and our false standard of living has been built on the backs of semi slave labor in China, India, Central and South America, etc. The Ponzi (I mean Madoff) scheme is unraveling in front of our eyes. The morons in Washington may be able to cushion the fall a bit but we are in for a long slow decline. The American Century is over…
January 7th, 2009 2:47 pm
I know y’all think this mod example is aweful… but really, it looks like a win-win for both of the parties involved. The lender gets to keep the loan on the books at bubble value, rather than market value. The borrower gets to live effectively rent-free for a couple of years before sending the jingle-mail. Sweet!
Excuse me while I puke.
You all think principal reduction manna is going to rain down from the heavens sometime REAL SOON NOW. I think you are hopelessly optimistic.
I think we’re gonna see several years of these “teaser” modifications and lot’s of quantitative easing by the Fed. Principal reductions are political suicide (and you are kidding yourself if you think politics don’t have a HUGE influence on “private” banks). For God’s sake, you’ve got Barney Frank, of all people, saying as much. That should tell you everything you need to know.
As far as cramdowns go, we’ll see if it ever makes it past the threat stage. Last time they tried it it was successfully killed by the MBA lobby. It will be fun to see how they plan to implement cramdowns without destroying contracts law. At least cramdowns are deflationary (a good thing) and require liquidation of the debtors non-essential assets (also a good thing, making it harder to game the system).
January 7th, 2009 2:55 pm
I read a story today about Ocwen, a major loan servicer. The are modifying as soon as borrowers fall behind. Between the lines: They employed a psyc PHD to help write computer code to analyze not just what borrowers tell them about their situation, but how they tell them about their situation. If the program determines that keeping the house is the number one concern, they don’t get a principal reduction. If lowering the payments is the number one concern, they get the reduction.
All Ocwen mortgages are securitized. So far, their clients are on board with the program. No lawsuits yet.
January 7th, 2009 3:00 pm
Coast – “Principal reductions are political suicide (and you are kidding yourself if you think politics don’t have a HUGE influence on “private” banks). For God’s sake, you’ve got Barney Frank, of all people, saying as much. That should tell you everything you need to know.”
I agree completely. I think a vast majority of people would be so offended by principal writedowns that any politician pushing for it would see his career end. And appropriately. That Barney Frank actually “gets it” shows just how unpopular an idea it would be if enacted. I was going to vote for McCain until in one of the debates he brought out his idea of using stimulus money to help people with their mortgages. Screw that.
January 7th, 2009 3:09 pm
“I think it means forcing the bank to choose between taking a 50% share of the equity loss through principal reduction or 100% of the equity loss through foreclosure”
If that’s what they’re looking at, wouldn’t they simply choose the former, as good business? Why the need for “forcing the bank to choose”?
It seems to be taken as gospel here that principal reductions are more long-term cost effective than foreclosure. But my gut feeling is that that may not be the case. Quoting from the Boston Fed paper:
“Type II error is precisely the reason that lenders rarely ever engage in principal reduction.
One lender summed it up this way, “We are wary of the consequences of being known as
a bank that forgives principal…we have not to date forgiven any principal.”
I think both the government and the banks would much rather hang on, by hook or by crook, until inflation ultimately bails them out.
Finally, I can’t help but point out again that principal reduction is political suicide. 31% rents, 26% own their houses outright, many more have low LTVs. If you’re a politician, which constituency are you going to pander to: the 20% of the country that are going to lose their houses or the 80% of the country that are going to vote you out of office if you bail out the 20%?
January 7th, 2009 3:11 pm
When the bankruptcy cram-down first came up, it was in the pre-TARP period when banks were doing principal reductions. At the time, I thought it was the worst idea ever. But don’t count it out.
It’s reported to be included in the Stimulus plan. If this is true, the question isn’t whether the MBA is going to kill it, the question is what the MBA is going to get for letting it pass.
We’ve already seen what they’re going to get in the past few days. Raising Fannie/Freddie/FHA loan limits back to $729k, lowering their interest rates to 2.99%, a six-month national moratorium on foreclosures and lots-o tax breaks for buying a house. Excuse me while I pick the MBA’s jaw up off the floor and wipe the saliva off.
They’ll cave on cram-downs in 10-seconds when offered the above.
January 7th, 2009 3:12 pm
“I read a story today about Ocwen, a major loan servicer. The are modifying as soon as borrowers fall behind.”
Link please. Or the name of the fish-wrap.
January 7th, 2009 3:16 pm
“They’ll cave on cram-downs in 10-seconds when offered the above”
Not so sure about that, but we’ll see soon enough.
“Raising Fannie/Freddie/FHA loan limits back to $729k”
Where did you see that? Flyover state representatives were vehemently opposed to that, last I read. I would be surprised if that made it in. But who the hell knows, anything’s possible.
January 7th, 2009 3:20 pm
Toast,
Forcing the banks to reduce principal balance does not require the government to mandate they do so. It only requires the government to publicly state that they will not purchase or lend against loans for more than market value. I agree there is no political support for bailing out homeowners, but I would submit there is even less support for bailing out Wall Street Fat Cats.
If the government did this, that self-important glorified bank teller quoted in the Boston Fed paper will change his tune pretty quick or face a future working the graveyard shift at 7-11.
January 7th, 2009 3:24 pm
Flyover state reps get everything they want too. That’s how TARP went from being a $700 billion loser to an $850 billion law. Everybody will get everything they want from arrow-manufacturers in Washington State to prostitution patrols in Dayton. Remember the first priority of every member just elected: get re-elected.
January 7th, 2009 3:34 pm
History could be repeating itself here with regards to McMansions.
(i.e) some manor homes of the guilded age were subsequently turned into rooming houses
Instead off bulldozing these enormous homes maybe they can be modified such that more than one family could reside within. Lord knows there likely is enough square footage and bathrooms.
Just a thought..
January 7th, 2009 3:38 pm
“I agree there is no political support for bailing out homeowners, but I would submit there is even less support for bailing out Wall Street Fat Cats.”
Bailing out the homeowners is also bailing out the fat cats. It’s the worst of both worlds.
January 7th, 2009 4:08 pm
Ok, well I guess the lines are drawn. Will it be manna from heaven (en-masse principal reductions), or more of the same (”teaser” workouts, quantitative easing, endless liquidity). My bets are shifting toward the latter (after being firmly in the deflation camp for the last couple of years, thank God). We’ll find out soon enough: Obama stimulus slated for February. In any case, I’m not gonna go all in on the inflation bet.
January 7th, 2009 4:11 pm
“Remember the first priority of every member just elected: get re-elected”
I do remember, that’s why I believe this quote:
“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. “
January 7th, 2009 4:12 pm
“I read a story today about Ocwen, a major loan servicer. The are modifying as soon as borrowers fall behind.”
What, no linky? I eat this stuff up, please provide a reference.
January 7th, 2009 4:20 pm
That isn’t a loan modification it is a lease..
January 7th, 2009 4:23 pm
Ocwen is one of the few publicly admitting doing signficant principal reductions instead, you can find the stories on housing wire or just googling and looking around message boars.
January 7th, 2009 4:31 pm
I like Pongo’s line.
Here’s the link, toast:
http://www.time.com/time/magazine/article/0,9171,1869202,00.html
I could be mistaken, but I think the Barney Frank quote in context refers to the July debate over the $300 billion Help4Homeowners program that Bush caved on and signed. That did use those taxpayer funds to partially cover the bank’s losses to be paid back to the government by the homeowner with future gains. It was typical of stupid government legislation, completing a grand total of 266 mods in three months before HUD gave up and ended it 12/31.
January 7th, 2009 4:31 pm
History could repeat itself with regards to these very large “expensive” homes.
Instead of bulldozing, could not these McMansions be permitted to be modified such that more than one family could reside within.(in the same way that some manor homes of the guilded age were subsequently converted into rooming houses)
Lord knows there is likley more than enough square footage and bathrooms in these things. Getting beyond the NIMBY aspect this may actual spur some economic activity and put the trash out guys out of work.
Just a thought.
January 7th, 2009 4:46 pm
Come on guys. This is a great mortgage for the right kind of person.
If you have been prudent all of your life and have no mortgage you can now have the opportunity to borrow 1,000,000 at 9000 bucks for 5 years.
Given where we are now in the economic cycle it is coming to the point where prices will recover in some areas and in 5 years time you can imagine you will be ahead. meanwhile 1000000 invested wisely in the best companies in the USA is going to more or less double your money.
if you are canny and have the stones this is the deal of a lifetime.
January 7th, 2009 4:51 pm
In any case, I’m not gonna go all in on the inflation bet.
. . . but all asset classes including stocks, private equity, commercial real estate, even racehorses. the values of which were inflated beyond comprehension as a result of the largest credit bubble in the history of the world.
I’m thinking that deflation wins for a long time – the fed printing money isn’t going to keep up with deflation because there will be $10’s if not well over $100 trillion of “wealth” (that never really existed) evaporate globally. The Fed and the US government won’t be able to reinflate the bubble – consumers just aren’t going to (or can’t) spend anymore. People are afraid for their jobs too and are packing money away (I know I am). The stimulus and bailout packages are just band-aids on severed arteries. I just don’t see how Obama and Co. can stop the death spiral.
January 7th, 2009 4:53 pm
redeye,
You said it well regarding the taxpayer in your January 7th, 2009 12:01 pm post. Congress only reacts and puts the taxpayer on the hook every time.
January 7th, 2009 4:55 pm
I must be living in a separate galaxy far far away. What ever happened to letting market forces clean out the delinquents, and prices adjusting accordingly?
January 7th, 2009 5:11 pm
It seems that the free market mantra works great until the executives and bankers lose their money. Then the mantra becomes “we need a bailout, not for my sake but for the sake of the economy”.
January 7th, 2009 5:11 pm
The kick the can down the road loan. Toss in monetary devaluation, and voila.
January 7th, 2009 5:14 pm
mo – “I must be living in a separate galaxy far far away. What ever happened to letting market forces clean out the delinquents, and prices adjusting accordingly?”
Welcome to the Mr Mortgage comment section where personal responsibility is scoffed at and everybody that was given a large amount of money to buy a house is the victim of fraud. If you were looking for folks that want people’s mortgage principals to be forgiven, you’ve come to the right place.
January 7th, 2009 5:39 pm
I bet there is more to the story, the house is either a tear down or in the middle of construction/rehab and the lender is giving the borrower a chance to finish because foreclosing now would net them a lot less. They are basically making this more like a construction loan than a traditional residential loan.
I don’t know contra costa from anything else in Northern California, but google maps didn’t make it look like a foreclosure capitol like vallejo or stockton. So I don’t think it is a supply issue. If this was Florida I could see this mod going on because they have many years worth of supply in some parts of the state.
I bet a picture of the house in its current condition would clear a lot of issues up. I don’t think this mod is anything to get worked up over.
January 7th, 2009 5:54 pm
Markytom,
Don’t you realize you’re part of the problem? Packing your money away instead of daily trips to Starbuck’s and a new flat screen for the bathroom. The USA needs you to whip out that plastic and spend on, brother. The Fed has ensured you’ll earn 0% on your savings, so if you don’t do caffine or already have that crapper TV, you’d better buy some stocks or perhaps another house. According to CNBC and the NAR, there’s never been a better time! Don’t you think they know more than you? You’ll be sorry when the economy turns around in the second half of the year (again) and everybody’s driving a shiny new BMW and their girlfriends have big new headlights!
You are responsible for this deflation thing and being very un-American.
January 7th, 2009 6:04 pm
From the Time article:
“Principal write-downs are practically unheard of elsewhere…”
I hope they remain the only outfit doing this and go out of business quickly. I can always dream, right?
January 7th, 2009 6:13 pm
“I could be mistaken, but I think the Barney Frank quote in context refers to the July debate over the $300 billion Help4Homeowners program that Bush caved on and signed.”
It’s from the Dec. 17th WAPO. And the sentiment remains no matter the context. Frank is aware that loan modifications that make the borrower whole again are seen as being grossly inequitable by the majority of the population (who won’t be recipients of the bank’s largesse). That’s why we will continue to see 1% teaser modifications and a tidal wave of liquidity, not mass principal reductions, in my opinion, obviously. “Ocwen” not withstanding.
January 7th, 2009 6:25 pm
I’ll throw my last two cents in here before retiring for a few weeks:
If you own your home outright, or if you rent, or if you are in no danger of losing your house, then I urge you to continue contacting your representatives and the press to express your outrage at the idea that the deadbeat down the street who hasn’t paid his mortgage in six months is going to have his delinquency forgiven and his loan principal written down by tens, if not hundreds, of thousands of dollars. If that doesn’t make you mad, it should.
And to all the posters here, keep shining the light on the cockroach infested underworld of the lending industry.
January 7th, 2009 6:25 pm
I read the 12/17 Wapo piece. The story was about the HUD Secretary calling Frank’s Help4Homeowners program a “flop” because despite $300 billion in taxpayer money it wasn’t a good deal for banks or homeowners. Leave it to a politician to come up with a deal that doesn’t help anybody and wastes $300 billion in the process.
Frank was defending himself and his program while blaming its failure on provisions inserted in order to get Bush’s signature. And I agree, not one penny of tax dollars should be used to modify mortgages whether it be principal, rate or terms.
January 7th, 2009 8:05 pm
This will be confirmation by the lender, the govt and the borrower that their property is now worth at most, the new loan amount.
January 7th, 2009 9:37 pm
redeye:
they now have an asset they can mark to $1 million on their books. They can now walk up to the Fed window and borrow against 90% of this “asset”
I realized that there is a two-party system: them and us
So WaMu gets to play its game for 5 more years. The energy crisis has not yet hit, when it does there will be two kinds of houses: those worth more because they offer transportation and energy efficiencies and those worth less because they don’t. If this house provides transportation and energy efficiencies then WaMu will own a $1 million property in five years.
January 7th, 2009 10:08 pm
To redeye:
I value your insight, experience, etc. that you are bringing to this thread. Please continue with your posts and help to keep this thread alive.
January 7th, 2009 11:01 pm
The Coast is Toast, the deadbeat down the street who hasn’t paid his mortgage in six months is NOT going to have his delinquency forgiven and his loan principal written down by tens, if not hundreds, of thousands of dollars. So that shouldn’t make you mad, this can work.
Keep shining the light on the cockroach infested underworld of foreclosures and hope that the lending industry see’s the light!!!
January 8th, 2009 12:47 am
How about every home owner gets a check for the reduced value of their home. Whether or not they have a mortgage or are under water. This would get the money in the hands of the responsible people as well. I guarantee this would spark an immediate lasting economic recovery.
Or we could just let the free market work the way it is supposed to. Grin and bear it, let the free market do what it should(weed out the irresponible borrows and let the forclosures happen)and move on-rather than prolonging the agony indefinetely with governtment handouts to those that don’t deserve it.
January 8th, 2009 1:27 am
MM great work as always. If you think for a minute that WAMU ar any other lender would not try to lock up a loser loan before Obama is in office you are out of your mind. Think about it for a moment these guys are trying to get every dollar out of a bad situation. They have no choice. It is what it is!!!
January 8th, 2009 2:20 am
I guess Wamu is the entity the banks wanted to jump in front of the bus and set a precedent-loan modification is truly now even adding dollars to the principal. With Wamu now JP Morgan/Chase & Co. and my dealings with them it is more likely a scan job or 98.9% of the loan modification companies best work to date, at least those fools provided an agreement for the homeowner to think about. It seems that somebody out there really wants to see homeowners suffer big time, I just hope Obama has some street smarts and isn’t the greenhorn wall street is banking on him to be.
January 8th, 2009 5:35 am
So WaMu can tell a nice story to the government and European banks it is doing business with: “Look, we have this highly successful program that turns toxic debt into AAA. Yes we’re so bright, please keep your cash coming in.”
January 8th, 2009 5:36 am
I agree with Pongo, this whole mod screams under construction flip.
January 8th, 2009 7:46 am
Wish I could say that I am surprised but I’m not. Have a guy I know, a mortgage broker,with 6 million dollars in loans. As of yet none of the properties have been foreclosed on, and as everyone knows, business for most brokers is down by 90%(of which I am sure his is). So magic question, how are these loans being paid? Answer: I am sure loan mods. Which only serves to say how long will it be before these loan mods come back as bad loans anyway. By the way, his properties are located in declining markets and are underwater! At some point in time, the bank is going to take back these properties which will be worth 1/2 of what the loan amount is on the books. Banks are just delaying the inevitable. No one likes to take bad tasting medicine.
January 8th, 2009 7:48 am
Instead of setting up the loan for failure, why not just mod it into a low fixed payment and be done with it? Who is going to buy that loan from them? NO ONE!
January 8th, 2009 7:58 am
What I find interesting, is that we have heard how AMAZING Indymac has been with loan mods, but I find that the amazing lender with loan mods is WELLS FARGO. I have a friend who works in the loan mod department, and he says Wells is doing it right. They are going back to the homeowners, modifying them into a LOW FIXED RATE mortgage with terms as long as 40 years! That’s it. Game over. Pain over. Homeowners is now in a affordable mortgage and their default rate is SIGNIFICANTLY better. Wells to me understands finally, what a loan mod is. They are smart. After a certain time of good timely payments, they will be able to unload the loan off their books and the homeowners will keep the home. The rest of these guys just don’t get it.
January 8th, 2009 8:37 am
Carol said “Instead of setting up the loan for failure, why not just mod it into a low fixed payment and be done with it? Who is going to buy that loan from them? NO ONE!”
Interesting point, but I wonder how many people will sit down this time and “do the math”. I think they need to find a new word to substitute for “modifications”. The way I see it is this is just more of the same preditory BS all over again. How many will bite on this…who knows?
January 8th, 2009 8:53 am
redeye,
just wanted to thank you as well for your comments which provide even more perspective. Keep them coming…
January 8th, 2009 9:45 am
The Right Monetary and Fiscal Policy Can not Get Us Out of the Depression
DIE ZEIT: Can the right monetary and fiscal policy keep the US out of a recession?
Alan Greenspan:
“Probably not. Global forces can now override most anything that monetary and fiscal policy can do. Long-term real interest rates have significantly more impact on the core of economic activity than the individual actions of nations. Central banks have increasingly lost their capacity to influence the longer end of the market.
Two to three decades, ago central banks were dominant throughout the maturity schedule.
Thus, the more important question is the direction of long-term real interest rates.”
Alan Greenspan
The Great Irony of Success
© ZEIT online, 30.1.2008
A Credit Free, Free Market Economy will correct all of those dysfunctions.
The alternative would be, on the long run, to wait for the physical destruction (through war or rust) of most of our productive assets. It will be at a cost none of us can afford to pay.
This Age of Turbulence People Want an Exit Strategy Out of Credit,
An Adventure in a New World Economic Order.
A Specific Application of Employment, Interest and Money
Press release of my open letter to Chairman Ben S. Bernanke:
Sorry, Chairman Ben S. Bernanke, But Quantitative Easing Won’t Work.
Yours Sincerely,
MC Shalom P. Hamou AKA ‘MC Shalom’
Chief Economist – Master Conductor
1776 – Annuit Cœptis.
January 8th, 2009 10:19 am
They are going back to the homeowners, modifying them into a LOW FIXED RATE mortgage with terms as long as 40 years! That’s it. Game over. Pain over.
One problem. Suppose the loan is for $900K but the house is only now worth $400K. The owner won’t able to sell the house for a long time, if ever, without a huge loss. It becomes more like owning a car – it is no longer an investment.
It comes down to the debate on high/hyper-inflation versus deflation and for how long. Does the US become more like Japan or Zimbabwe? Right now that is the unknown.
January 8th, 2009 10:41 am
Has anyone looked at paragraph 14 of that agreement? Before anyone should every consider signing for that waiver they need legal advice. If that loan was rescindable, that waiver is way more damaging than it appears. Loan modification agreements have many legal pitfalls.
Feel free to download my free book on this mortgage crisis which educates consumers on how to determine their own financial circumstance. The above situatin by WAMU is like just giving the consumer an option arm to begin with. Give them the house back.
Free book is here:
http://www.loandefects.com/25801.html
January 8th, 2009 11:10 am
Government Agencies, Wall Street firms and Lenders deceived homeowners and investors for profit. Special or creative financing was provided by these entities and placed an undue stimulate on real estate sales and the creation of mortgages.
The FNMA/FHLMC definition of market value states the assumption the price is not affected by undue stimulus and the price represents the normal consideration for the property sold unaffected by special or creative financing. Government Agencies, Wall Street firms and Lenders knew the consequences of their loan products. They violated their own policies and procedures to increase their profit and in the process deceived homebuyers and investors.
Homeowners and investors who can make their payments owe more than their properties are worth. Add to this the return to traditional underwriting and the reduced number of qualified home buyers, properties will not be able to increase in value to the amount owed for 15 or more years.
There is now a no cost grassroots alliance of homeowners and investors who are advocating accelerating the repayment of mortgages by the elimination of interest.
We are a group of mortgage and real estate professionals who are fed up with the inadequacy of current real estate crisis solutions and have formed The American People’s Fix. Take a moment to review the site below and then take action and send this information to your friends and neighbors. If you are an industry professional send this to your client base and relay the message to your colleagues. “The American People’s Fix” Our alliance gives us the strength needed to fix “The Real Problem”. http://www.americanpeoplesfix.com
January 8th, 2009 11:34 am
Good Work John Lorson and yes they deceived the home buyer
January 8th, 2009 11:36 am
It doesn’t really matter what they do. The problem is people are losing their jobs so unless they get a payment free plan for 5 years nothing any company does is going to help. We have lost so many jobs for this “Global Economy”, we have sunk our own country. I am in the business and everyone in default says the same thing, “I lost my job and I can not find another.”
January 8th, 2009 3:57 pm
I’ve carefully read the hypothetical loan modification agreement and I feel that it could work for me. I am now in a position where my rate will adjust down this year (12 MTA/ 2.07 margin) to about 3%. I am facing the decision to either continue to make 3% mortgage payments each month out of my retirement nestegg or cut my losses and walk away and rent. The potential of paying just 1% for the first 2 years is as cheap as renting a 30 year-old duplex. The rate change uncertainty is gone. (Even 3% on the 3rd year is where I am today.) All of the time, I could be looking for a buyer or even a tenant. If I lose the house after 3 years, or so, then so be it. In my position, I see this as a gift from WAMU (if it is still available?).
Please jump in. I’ll value all constructive criticism/comments. Thanks.
January 8th, 2009 4:18 pm
Because of the interest in the post by redeye: “I read a story today about Ocwen, a major loan servicer. The are modifying as soon as borrowers fall behind.”
I used the awsome power of Google to find the link:
http://www.time.com/time/magazine/article/0,9171,1869202-2,00.html
But I would suggest that all re-read the 1st post by markytom. It shows why the rise in home prices on the coasts has all the earmarks of “the greater fool theory” as there are not enough qualified buyers to support the high prices.
January 8th, 2009 4:20 pm
As long as the modification requires no money out of pocket and does not change the terms of you mortgage to the recourse variety, your logic is financially reasonable.
That being said, I think you need to factor in the possibility of wanting to buy again in the future. If home prices stay somewhat flat between now and five years from now (I would guess a bit more decline and then a small bounce back over that time), then you may be better off by walking now and starting the credit healing process. If you wait 2-3 years to walk, you may not be able to re-enter the market until 7-8 years from now when prices may be a bit higher than today.
There are several things which will be tough to predict such as future lending standards, interest rates, foreclosure laws, the possibility of hyper-inflation, etc. which make the decision a bit more complicated in my opinion. My gut feeling though is to simply take whichever path allows you to stockpile the most amount of cash you can over the next few years. I think this will give you the most flexibility five years from now. Good luck with whatever you decide.
January 8th, 2009 4:33 pm
Vindication is mine!! I said it once and I’ll say it again…The Chikens are Coming Home!!!! This will not work. It will not work because nothing these morons do from now on will be scrutinized with complete mistrust. Bankers, The Fed, The Government have now been ousted as complete scam artists who are only interested in fleecing the American people. Even stupid people eventually get that they’re being tooken. But even if that weren’t true. Americans are freaking broke!! There is no more money to spend.
January 8th, 2009 4:50 pm
Thank you, Partyboy, for your considerate reply. This loan was the last loan that I’ll ever have. I cannot show income and portfolio loans are a happen memory. After WAMU suspended my HELOC twice last year over monor credit issues, as soon as it was re-instated, I drew it down completely and bought their 5% CDS. (Which they were happy to do at the time. No more games, sleepless nights.)
January 8th, 2009 5:08 pm
Citigroup just caved on bankruptcy cramdown.
http://online.wsj.com/article/SB123144562914865337.html?mod=googlenews_wsj
My take: Bankruptcy is a pretty expensive and involved process. Not many homeowners who just need mortgages re-written are likely to go this route. But Citi probably wouldn’t have gone along with it unless they are planning on principal reductions preemptively. And I’m sure they were promised more money to keep them in business as all of their loans, not just mortgages, go bad with increasing frequency.
January 8th, 2009 5:23 pm
Jerry Howard, president of the National Association of Home Builders, told the WSJ that the NAHB has reversed its yearslong opposition to cramdowns, as foreclosures choke the market for new homes. “This is an about-face for our organization.”
They all got bought off, or saw the light, or most likely, both.
January 8th, 2009 5:39 pm
redeye,
At the bottom of the WSJ article you referenced is:
“In a concession to lenders, if a lender is found to have violated the Truth in Lending Act during bankruptcy proceedings, the institution would be subject to fines, but would not have to forgive the loan, as is the case currently. Major violations would still be subject to full sanctions under the law. The TILA provisions would pre-empt any state lending laws.”
Considering that many are “walking away” and that many loan docs are lost and that many loan origination people “fudged” or were sloppy; it looks like the bankers came out ahead once again.
January 8th, 2009 8:19 pm
The bank is trying to do things:
1. Convert the nonrecourse loan into a recourse loan.
2. Spread out the foreclosures over time in hopes of softening the blow to the market.
Borrowers should not sign such agreements, as they will be forced into bankruptcy.
January 8th, 2009 8:41 pm
Okay so the lenders have screwed us and now they have another great program to screw more going.
Did any of you look at the idea at http://www.thepeoplesfix.com . A program with no cramdown but still gets principle reduced faster – wow what a novel idea. No bailouts for anyone so no funds from the feds and it increases economic buying capability.
I don’t want to walk away but without someway of getting my principle down it doesn’t make sense to stay at it for 15 years. This looks like it would take maybe 4 or 5 years to get back to even. That I might live with.
January 8th, 2009 10:15 pm
Hey, can anybody place a dollar value on the piece of paper on this 800k loan that gives up the right to sue for predatory lending? Is that piece of paper worth 50K, 100K, 200K??? You might be giving up a nice down payment while thinking you are getting a deal…The banks seem to be very hot on this little piece of paper.
Any estimates as to value out there?
January 8th, 2009 10:20 pm
I’m beginning to see a low-level solution that could help get America out of this crisis faster than waiting on government and banks. But it requires lots of Americans to do something somewhat unnatural.
Households must combine together.
Two small families living together in a house. Both pay half the mortgage. Housing expenses could be halved and savings can be boosted at a much higher rate than if they lived apart. That means down payments can be accumulated faster. That means debt levels can drop faster.
But can two small families live together? In this extremely individualistic America? And scale down their belongings to make it work? And cooperate together? That is the question.
But then again, this is America. People get pretty creative about saving money. I’m sure there will be some people who make this work. College students do it, why not families too?
January 9th, 2009 1:35 am
[...] Disaster capitalism in progress Published January 9, 2009 class warfare , consumer protection , culture of corruption , economy Mortgage modifications have turned into a disaster of epic proportions. [...]
January 9th, 2009 1:08 pm
Quoting BertDilbert “Hey, can anybody place a dollar value on the piece of paper on this 800k loan that gives up the right to sue for predatory lending? Is that piece of paper worth 50K, 100K, 200K??? You might be giving up a nice down payment while thinking you are getting a deal…The banks seem to be very hot on this little piece of paper.
Any estimates as to value out there?”
Yeah, rescission of the entire contract and give them back the keys without a credit hit. That is the value I see in relation to rescission and predatory lending.
January 9th, 2009 1:19 pm
Lenders cant really do this as it would be pretty much immediately marking their loan to market. Which is exactly what they are all trying not to do right now. If they admit on their books that their loans are all about 50% to high, they’d all be insolvent. So this is why we’re going to continue to turn Japanese. Hide the truth under the level 3 rocks. Continue to offer “solutions” to the borrowers that no one will ever take. This maintains the apprearance of trying to solve the problem, but they dont want this. It would mean their death. So look for a lot more of this in the future.
January 9th, 2009 3:38 pm
[...] now as Mr. Mortgage has documented, we are starting to see documentary evidence of even bigger abuses in the “refinance” [...]
January 9th, 2009 3:39 pm
I read today that about 50% of workers live paycheck to paycheck, and 25% of workers earning over $100K live paycheck to paycheck. That means that any type of mortgage that includes some kind of balloon payment (for a very large percentage of workers) means only one thing – foreclosure.
Add to that millions more people are going to be unemployed in the near future, housing prices are going to continue to collapse, and bonuses, stock options, IRA withdrawals, wages, and other compensation are going to go way down in this brutal recession. These loan mods only delay the inevitable – either foreclosure or bankruptcy of the buyer. There is nothing “fair” about them. The banks are trying to do some more “financial engineering” to fool buyers, regulators, investors, etc. with more BS.
January 9th, 2009 6:16 pm
[...] Full Article Here [...]
January 9th, 2009 8:03 pm
EXOTIC is just E-TOXIC spelled sideways.
January 9th, 2009 8:04 pm
[...] The research and docs are from Mr Mortgage and can be found on his site. [...]
January 10th, 2009 3:27 am
Jackalope:
Yes, I checked the Fix, it is mainly aimed at real estate investors (first) and homeowners, looking to get rid of interest payments altogether.
Their offer–no interest just full principal payments made.
versus
an nominal interest payment on even 50% of the principal balance exceeds their offer.
The problem is banks and the government don’t want Wall Street to take any loss, unless forced to, which is the reason for all their modifications and solutions.
January 10th, 2009 3:29 pm
off the subject but……
S.D. inventory really is taking a dive, the lowest in many years.
Anyone have thoughts?
January 10th, 2009 9:29 pm
S.D. was the first to take a hit.. may be the first to recover.. however you’ll need a few months to a year (maybe 2) of diving.. to indeed confirm it..
Wasn’t November when North County had a drop in price of 8-10%?
Maybe pp just don’t want to sell.. or can’t.. r they forclosing more? have the REO gone up?
I’ve not confirm the diving.. u’ve got numbers? what about prices.. have they stoped diving?
January 10th, 2009 9:44 pm
Never confuse bottom with rebound.
January 10th, 2009 10:14 pm
Section 14 waives all claims the individual may have against the note holder and deed of Trust. I work at a law firm that handles foreclosure defense and I find in approximately 80% of the time the original note is “lost.” This is a big reason for loan mods. Every loan mod done is one less class action plaintiff.
If entering a loan mod I would first ask to see the original note signed at closing, at this point how do you even now they are the holder in due course?
The note could have easily been sold to the Treasury, The Federal Reserve…the MBS Trust could have defaulted.
Be smart, you are waiving all you claims. Make sure the loan mod is what you really want.
January 10th, 2009 11:47 pm
martin RE: SD low inventory
How do you sell your house when it is 200k underwater? Do you take a suitcase full of cash to closing? My guess is people do not have enough money to list their house for sale, so low inventory would be irrelevant. This is the point that Mr. M has been making, unless there is a principal reduction, you are stuck.
This is going to become a larger issue as unemployment continues to climb, people cannot leave state to pursue new jobs. 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!!!
CA Burning report: Heard down at the docks that normal full time bosses and crane operators were fired and sent back to the Union Hall at one facility. Looking grim.
January 11th, 2009 9:47 am
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.
January 11th, 2009 5:50 pm
BertDilbert, it’s not just CA. Port traffic is WAY down worldwide:
http://www.freep.com/article/20090104/BUSINESS07/901040369
January 11th, 2009 7:16 pm
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.
January 12th, 2009 3:21 am
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.
January 12th, 2009 4:43 am
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.
January 12th, 2009 10:54 am
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.
January 12th, 2009 11:43 am
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.
January 12th, 2009 12:48 pm
guy1 – It’s “You’re ignorant…” not “Your ignorant…”
January 12th, 2009 1:47 pm
JAllen…game, set and match!!
January 12th, 2009 1:49 pm
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.
January 12th, 2009 1:53 pm
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.
January 12th, 2009 1:54 pm
Make that ‘hear it here’
January 12th, 2009 2:27 pm
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?
January 12th, 2009 3:00 pm
Gee Bert, I don’t think it’s a true “Bailout” unless you use borrowed money.
January 12th, 2009 5:11 pm
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.
January 12th, 2009 5:57 pm
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.
January 12th, 2009 6:12 pm
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.
January 12th, 2009 9:04 pm
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.
January 13th, 2009 12:15 am
@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.
January 13th, 2009 3:04 am
[...] 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 [...]
January 13th, 2009 6:34 am
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!
January 13th, 2009 7:05 am
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?
January 13th, 2009 10:51 am
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?
January 13th, 2009 11:10 am
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.
January 13th, 2009 2:11 pm
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.
January 13th, 2009 4:04 pm
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!
January 13th, 2009 4:43 pm
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!
January 13th, 2009 5:32 pm
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.
January 13th, 2009 8:40 pm
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.
January 14th, 2009 7:40 am
@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.
January 14th, 2009 8:10 am
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.
January 14th, 2009 8:45 am
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!
January 14th, 2009 9:20 am
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.
January 14th, 2009 3:20 pm
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.
January 14th, 2009 5:15 pm
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.
January 14th, 2009 10:10 pm
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.
January 14th, 2009 11:04 pm
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.)
January 14th, 2009 11:10 pm
https://www.wamu.com/customer_service/contact_us/WaMu_Cares
January 15th, 2009 1:19 am
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.
January 16th, 2009 9:40 pm
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!
January 17th, 2009 4:32 pm
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!
January 23rd, 2009 4:03 am
[...] 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 [...]
January 23rd, 2009 5:48 pm
[...] you are interested, read Mr. Mortgage to learn about some of the “fixes” being employed in the industry – and consider the [...]