Massive Loan Modification Campaign On the Way!

[ChinUp]

A couple of points that I don't hear in discussions of this issue:

1. Borrowers took risks based on a long history of mortgage lending in the United States when taking out adjustable rate loans. For me, I knew that the health of the housing market depended on stable employment in a given community and stable interest rates. Housing prices, while rising, were in line with affordability indexes in my community. As someone self-employed for less than two years with awesome credit, it made sense for me to take a risk with an adjustable rate mortage so that I could buy before prices went up a lot more. Given the health of the overall economy and the state of interest rates, the greatest risks I could see were a major natural disaster or terrorist attack that had an unexpected adverse effect on housing.
2. The lenders, by changing their approval guidelines, something that a consumer could not have possibly evaluated at the time, created the "natural disaster" that caused housing to plummet. Yes, we all took risks, but we took risks based on a solid history of information. The lenders changed the riskiness of what borrowers did, mostly through sub-prime loans. This really jeapordized the more informed Alt-A buyer. This buyer, the one with the good credit and assets, is the buyer who they think can "afford" these payments.
3. So, yes, lenders are dealing with defaults, and that is a loser on one part of the balance sheet. But if 80% of Alt-A borrowers, borrowing RECORD amounts of money have adjustable rates and are now paying 9, 10, 11% interest on those loans, isn't that a cash cow that banks aren't prepared to give up?
4. And if these borrowers are exhausting their savings and assets to do the right thing and pay their loans, they aren't exactly spending money in the larger economy, right? This would have an effect, wouldn't it? The banks are collecting a gross amount of interest and draining the larger economy at the same time.
5. And if those borrowers who do have some equity can't refinance, and they can't modify, they will sell. And when they sell, and inventory rises, they will lower their prices, and the other homes in their neighborhoods that also currently have equity will lose it.

[djt813]

Originally Posted by Yanqui

You know Shiela Bair has a good and exquitable solution. I posted her workout sheet somewhere on the board... So logically for the market to stabilize Sheila had worked out a deduction on value and a drop of the interest rate that would intially cost the the banks 40 to 50 thousand? that they write off instead of 160 thou for a foreclosure...

Yanqui, any idea where the referenced post it? I tried looking through all your posts and didn't find it. Curious to hear a story of someone getting principle reduction - the only true solution for people upsidedown $100K+ and not able to guarantee being able to live in their home for 10+ years!

[Yanqui]

It's here at FDIC Loan Modification Program | Loan Mod in a Box | Loan Modification & Home Loan News it's under the workout guidelines.

As far as what I keep reading here it hasn't happened, but hopefully this is part of the bad bank; or whatever the President has planned.

[djt813]

Reading about the FDIC program, I find an interesting term - principle forbearance. Checking into it, I confirm my suspicions. It is, sadly, not synonymous with principle reduction. Ugh.

The FDIC's "principle forbearance" is not forgiving principal but offering an interest-free forbearance of repayment of part of the principal. So, the mortgage payment the borrower makes will not fully amortize, or pay off, the balance at the end of the loan. It is only partially amortized, because a portion of the loan's principal is excluded from the amortization calculation, essentially making that portion a zero-interest balloon payment.

Depending on each individual's situation, that will likely leave people stuck in a property with no way out until the majority of the market value recovers.

Here is the synopsis of the FDIC canned solution to loan mods:

* The FDIC approach is to arrive at a total housing-payment-to-income ratio or HTI, which they confusingly call a "DTI," of 38%.
* First, the interest rate is lowered to the current Freddie Mac survey rate for fixed rate mortgages, and fully amortized as a fixed rate loan.
* If that is not enough to achieve 38% HTI, then the interest rate is "stepped" for up to five years. That means that the initial rate is set no lower than 3.00% for the first year, and increased each year by no more than 1.00% per year, until it hits the Freddie Mac survey rate (which was 6.50% at the time FDIC published).
* If the "rate stepping" all the way down to 3.00% isn't enough to hit a 38% DTI, then the whole thing is recalculated with a 40-year term, rather than with the remaining term of the loan.
* If the term extension, added to the rate reduction, still doesn't hit the number, then and only then will the FDIC use "principal forbearance."

[Al_2009]

All the talk about morality with regard to modifications, principal reductions, etc., is just mind-boggling. How come there's so much anger over working people trying to keep their homes? More to the point, how come people just shrug their shoulders over farm price supports (which is in essence a bailout for family farms that's been going on since the Depression), bank bailouts (what have YOU gotten in return for your $750b in TARP largesse?), Wall Street bailouts (most of the idiots who buy and sell these debt instruments can't explain them, and yet their bonuses will still be a lot more than mine this year) etc., yet get so totally spun up over the thought of their neighbors getting some help to keep their homes? It's just mean-spirited, and it's surely not good economics.

The current real estate environment is destructive to everyone, whether you're on the edge or over the edge.

Sorry for the rant, but that's my 2 cent's worth...

[whatsinaname]

I can't wait to hear what the Govt's plans are to help people in foreclosure. Supposed to be announced next Wednesday. Actually, I am not sure if it is to help those who have already received foreclosure notices or those who are delinquent but are not yet in foreclosure.

[martialgir]

In the big picture, I think that the president's plan for "helping address the foreclosure epidemic" and why the plan turned out to be a big disappointment (for most of us) has to do with keeping the status quo. Meaning, most of the control has to stay in the hands of the banks/investors or it could set a dangerous precedent. The Fannie Mae/Freddie Mac backed loans are an exception because the government basically owns and controls Freddie and Fannie. They can pump more money into these entities or change the rules so that whatever hit they take on refinancing/modifying these loans will not sink the ship.
However, the voluntary nature of participation from the other lenders and investors maintains a business/corporate protocol that will never allow control to slip into the hands of the "little people." (us) If WE were calling the shots then there is no telling what chaos would ensue.
In other words, our system is designed to keep us living in fear; FICO scores now play a role in insurance rates, jobs, obtaining credit (obviously)or keeping favorable terms on the credit you have. We have been trained to bow to the almighty credit score (our worth as human beings) which is what keeps the masses moral and paying their bills on time. It is a contrived system and part of keeping control in the hands of the pupeteers of the system.
If the borrower had more of a say in what works best for their particular financial situation or is allowed to be gifted with the write down of a mortgage based on present market value, then the lending institutions are not in control; external forces are ie; the market not them.
They fear losing control. The government also has a vested interest in keeping the masses under control so they cannot afford to allow a precedent which could bleed into their need to control.
The only thing that puts absolute control into our own hands is if we stop fearing the almighty credit score, stopped paying bills we could no longer afford, and stopped paying our mortgage payments if reasonable terms could not be worked out to benefit us.
These occaisional bandaids put forth by the government, I believe, are stall tactics designed to keep people at bay from a massive exodus. Keep prolonging and stalling, let everyone think there is something coming down the pike, let everyone go against their own best interests by cashing out their retirement, savings, selling personal items, etc., just so their worth as a human being (paying what we can't afford) is not altered.
I'm tired of playing by the rules; rules that were set up by people who did not have our best interests at heart. Business transactions are supposed to be a partnership between two parties. When one party knowingly takes advantage of another party by rigging the system then all bets are off. Whether or not some people got in over their heads is incidental; the system is rigged for you not to win, ever. Economic slavery is still slavery and we know slaves eventually revolt. I'm tired. I played by the rules and now am tapped out. Ten years worth of savings gone in one year to play by the rules. I don't care about the rules anymore and will just take one day at a time to see how things pan out for me in the big picture.

[judywayne]

J have a 80/20 loan. First with Chase and second with Suntrust. I had to go on social security disability in 2008 after working 36 yrs. Had to go a whole year with no income and went thru $25,000 of IRA to make house payments and bills. I put down $50,000 on a $395,000 loan with a fixed rate of 6.75. Second is 10.75!!! Had to hire an attorney because getting someone to call you back at the lender is next to impossible. The attorney is trying to work out a loan mod. My home is only valued at $240,000 now. I don't know whether to walk away or continue with mod. I am three months behind and have received default notices. I don't know what to do. I think the banks are running this country. I had an excellent credit rating until I got three months behind and now my credit is down the tubes. Why do they have to ruin your credit before a mod is attempted?

[1gringo1]

It appears that those of us that also have VA loans that we will be assisted as well. "The government will seek to apply any modification program to FHA and VA loans, in additional to conventional loans owned or guaranteed by the GSEs. Details of the guidelines will be released before March 4.." THe question is how will this process work. As I haven't followed through on my ist loan mod- do I call after the bill is passed, or are they going to call me. Are they going to have a period that no loan foreclosures will be done until this is sorted out. If so you are talking about months if not years as this will overburden the banks. The can't handle the loan mods they are doing now let alone this monster bailout coming. Anyhow-I'm looking at living in my house for free for quite sometime until this is all sorted how.

[judywayne]

Can the bank still foreclose on you if your attorney is still in the middle of a loan mod? If so, what good does it do to have an attorney? I have a bedfast daughter with an incurable disease and I can't afford to be out of the street with her.

[whatsinaname]

I understand that the government aid is halted because of disputes. I think the banks are getting their way.

[snapple candy]

judywayne,
I was served with a pre-foreclosure letter even though in mod negotiations and it scares alot of people. I think they can serve you with foreclosure papers and start the process even while in negotiations. May be a way to put the pressure (strategically) on you to accept their terms.

Yes, the govt. aid is in dispute. Who do u think will win? Unless we all stand up and let our voices be heard, they will crush us like bugs because they have the power and the money. Contact your congressman and let them know how you feel. Maybe we should all march on Washington in mass. Problem is, none of us have a money to buy a plane ticket or afford a hotel. I suppose we could all take our tents but its still cold there.

[whatsinaname]

Originally Posted by snapple candy

judywayne,
I was served with a pre-foreclosure letter even though in mod negotiations and it scares alot of people. I think they can serve you with foreclosure papers and start the process even while in negotiations. May be a way to put the pressure (strategically) on you to accept their terms.

Yes, the govt. aid is in dispute. Who do u think will win? Unless we all stand up and let our voices be heard, they will crush us like bugs because they have the power and the money. Contact your congressman and let them know how you feel. Maybe we should all march on Washington in mass. Problem is, none of us have a money to buy a plane ticket or afford a hotel. I suppose we could all take our tents but its still cold there.

Or, you can write to the White House via their site as I have done twice. There is a link for "contact" on their site.

[CW California]

Moe
Would love to read your "The Great American Swindle....", but it's no longer there.

I have my own theory on this too. If the banks take over the real estate and the govenment takes over the banks.......

[CW California]

Moe
I think your comment about the conspiracy is interesting given that the government would like to take over the banks as well.