Massive Loan Modification Campaign On the Way!

[Moe Bedard]

Our Government Has Spoken - Now Let’s Hold Lenders Accountable

US Treasury Secretary Henry Paulson - “We’re never going to be able to process the number of workouts and modifications that are going to be necessary doing it just sort of one-off, I’ve talked to enough people now to know there’s no way that’s going to work.”

Chairmain of the FDIA, Sheila Bair- “Lenders should extend “teaser” rates on all subprime adjustable-rate mortgages if the borrowers haven’t missed any payments and they live in the homes, Bair said today in New York. Modifying loans on a case-by-case basis and fixing rates for limited periods won’t avert enough foreclosures.

“With this type of cooperation from loan servicers, we can save tens of thousands of people from being added to the foreclosure lists. This common-sense approach does not involve a government subsidy or bailout,” said Governor Schwarzenegger.

The proposal for loan modifications now supported by the Treasury and the coalition of lenders takes a similar approach with three groups of borrowers.

1. Interest rate resets for borrowers will be fixed for a certain “undetermined” amount of years (as of this writing, that time period has not been defined) the current balanced owed on the mortgage would remain the same for borrowers who qualify.
2. Borrowers who can afford to keep on paying their adjustable rate mortgages would not receive any relief.
3. Borrowers who cannot afford to continue paying their mortgages even at “courtesy” fixed rate will not receive any more relied and will be allowed to default as needed.

I feel that’s fair but what about the homeowners who are currently “stuck” in the foreclosure system? Will they just suffer their fate?
I hate to play devil’s advocate, but that’s pretty screwed. But it looks like there is no “perfect” solution to such a complicated problem. However, I feel that delinquent homeowners that can prove their ability to pay their mortgages at a “reasonable” rate should be allowed to qualify for mortgage relief.

I have yet to verify if relief will be given or not to already delinquent and defaulted homeowners. Based on the reports and the preliminary plan thus far, it doesn’t appear that it will. As soon as I do hear something, I will report that here.

Lenders and servicers are likely to look at whether the borrowers have sufficient equity in their homes, despite plunging home values and whether they have adequate income to support their mortgage for the long term.

Critics of a mass loan modification campaign continue to push for a case-by-case approach to mortgage restructuring . But it has become clear to all that, with the exception of few major corporations or financial institutions, the across-the-board approach is the only feasible way to effectively deal with our mortgage and housing crisis.

[sevendipity]

"Borrowers who can afford to keep on paying their adjustable rate mortgages would not receive any relief. "

Why shouldn't people who can afford the adjusts, but are doing so by draining their savings, selling their assets, and having no life outside of work and sleep not be helped? Why is it just people who can't afford the increase? We all got into this boat hoping and praying we could afford it when it adjusts or refinance by the time it adjusts. What are they basing "can't afford it" on? I've been very diligent about making my mortgage my first priority, even when it went up $230 a month and I will continue to do so when it goes up in April. I've done everything I can to keep my home, keep my credit, and I've ruined my happiness and my life in the process. I stepped up when I made a bad choice of getting into this kind of mortgage hoping I could hold out for when help comes. I don't doubt that people who can't afford it should be helped, but I think everyone in this situation should be helped. I don't think I should be miserable and lose everything extra to keep my home, when people who "can't afford it", get help, get happy, and be fine.

[Moe Bedard]

I think that is screwed also. There is no perfect plan. The people that can afford it, will most likely walk away because they will get sick and tired of paying 13% on a worthless asset when they can rent much cheaper.

Yes any plan will have many down sides. It is better than nothing, for now.

[JacMac]

Lenders and servicers are likely to look at whether the borrowers have sufficient equity in their homes, despite plunging home values and whether they have adequate income to support their mortgage for the long term.

Moe, in my neighborhood you could not by a home for less than 900K -- that's crazy right? What hard working middle class person has 900K?

But people were buying at these prices, of course with these crazy loans, and the rental market reflected this as rent prices went up sky high so that homeowners can pay their mortgages.

So I agree with sevendipity, what would be in it for someone who has kept their heads afloat thus far if there isn't a light at the end of the rainbow -- a loan modification?

Why pay into a loan that is draining the equity from your already equity-losing home when at the end you end up owing more than you borrowed?

Maybe I'm wrong -- It doesn't seem to be worth it, if at the end of the day your quality of life sucks because you're working like a dog to keep something that ends up not being worth what you paid for it.

I think part of the loan modification process should be taking into account homes that were given loans based on an inflated appraisal -- adjusting the loans to reflect the true market value at the time the loan was given if possible.

Am I just insane or niave?

[Moe Bedard]

I think you may have just answered your own question. Value is what someone is willing to pay for it. What value is in it for you? Is that value "worth it"?

This "issue" above is the hidden "skeleton" in the closet. I suspect we will have hundreds of thousands of people that just say, screw it, and throw in their keys.

[JacMac]

For me the answer is my home is worth it -- I'm not going to give that up, but I wonder at the thinking of those lenders and investors, if they didn't forsee that some would, as you've put it, simply walk away. What then? Where does our economy go from there?

Those are rhetorical questions -- it just seems to CW and other lenders are willing to cut off their nose to spite their own pockets. Don't they just get richer by modifying ALL the loans they can?

[6wolverines]

I agree JacMac....Doesn't the "average" foreclosure cost somewhere in the range of $50,000.00? Add to that the plummeting value of the home in a crummy market that's left to the elements, vagrants, thieves, metal scrappers, etc....and what does the lender end up with? A $hithole that's worth a fraction of the original loan.....and in this market....good luck getting anyone to buy it! I want to fight for my home and wonder why the lender doesn't want to fight along with me? Knock! Knock!....WE ARE ALL LOSING..not just the working class schlumps like us! I can't imagine why the lenders aren't beating feet to modify all they can to save themselves money and keep us folks in our homes?

Char

[JacMac]

Maybe we simple folk don't get it because we don't think in terms of bottom line and tax advantages and what our profit & loss statement can look like -- it seems like these big conglomerates think futuristically, as if they are promised to be here another day, and of what will be rather than looking at what is happening right now.

I believe THAT'S the reason that they don't sympathize with the homeowner. They're looking down the road five, ten, twenty years and what homeowners are going through right now is just a blip on the radar, because after all, right now they (meaning the big lenders) are doing pretty good -- maybe not as good as they were but well enough that they can ride the sea of foreclosed homes and homeless people until things get better.

[Moe Bedard]

All valid points. I have my conspiracy theories about his and have written extensively on this in my posts on my blog titled, "The Great American Homeowners Swindle"

Is this a plan by big banks to "own" the whole mortgage and real estate market. They can take billion dollar hits and then end up owning most of the US's real estate by the time this foreclosure crisis is over.

Countrywide Real Estate and Loans

Bank of America Real Estate Division

Countrywide Property Management

?????????????????????????????????????????????????? ????????

[MlcMBjnn]

How does freezing interest rates on ARMs fix the negative equity situation that most of the borrowers find themselves in? Let’s face it, most people took these loans because they believed the fiction that their houses would only appreciate and they could refinance before the ARMs exploded. For people who bought at the height of the bubble in the most inflated areas of the country this will never be true – they are looking at being upside down in their mortgages for a long time, probably well past the five year freeze.

To illustrate – let’s say I bought a house for 400K in California in 2006 with a 2/28 ARM and 0% down. That same house – six months before the ARM is due to reset- is now worth 310K so refinancing or selling are out of the question. Let’s also say that this market correction is not over yet and this house will continue to depreciate until it finally reaches a level where it becomes affordable for the median income in my particular part of California and this happens within the next six months (summer 2008 is where the so called experts say the bottom will be). My 400K purchase now appraises at the time of the reset for 232K, but the lenders are going to bail me out and freeze my loan at its teaser rate – because my loan is current, my credit is decent, and I can’t afford the adjusted rate. So now what do I have? An affordable payment for five years on a house that will probably never again be worth what I initially paid for it – if it appreciates a normal 5% per year (normal as in non-bubble rates) for the 5 years the lender has fixed my rate, then at the end of the five years it will be worth 295K. I have no idea how to do the math to figure how much I would still owe on my original 400K after 5 years of payments, but I bet it’s a lot more that 295K. What if I get a job that’s an incredible opportunity, a substantial pay increase, and is in Texas? I won’t be any more able to get out of this in 5 years than I am now.

How does this help me or anyone? Using this example, I can’t get out of this and neither will most of the people currently in these loans because the far more dangerous problem is the growing negative equity in these houses. Why is it not better for me to just take my lumps now, lick my wounds, and someday come back to market from a much stronger position - when I can find a decent house that is the recommended three times my income and put 20% down.

I have a really bad feeling that this bailout is delaying the inevitable for a lot of other people and is really an empty gesture by politicians in an election year. The housing market has crashed, the economy may follow it, and a lot of people are going to lose their homes

[JacMac]

You make a very valid argument, but I think part of the decreasing value and loss of equity problem for most homeowners are these toxic loans which are causing foreclosures which in turn leads to loss of equity.

It's a domino effect. Stop one domino from falling and maybe you can preserve the rest of them.

Like Moe said here or maybe elsewhere, many buyers will just walk away, realizing that their pouring money down the drain. If that happens on a large scale, we're all screwed and the banks will lose big time unless Moe of course is right and what they wanted were the houses all along.

[evel1999]

I am not sure this rate freeze will be for negetive option payments. If they are, and they have not made that clear, but you would have to pay the higher payment to keep from adding more negitive to balance.

It sounds like it will be for the regular 2/28 loans that pay principal and interest already and havd adjustments that will reset beginning 1-08 thru a certain date. Don't know what they have planned for the pick a payment loans.

But according to the president, your rate must be due to reset starting 1-08 thru a certain time frame they listedl. Also you must be current on your payments. You cannot be upside down on the loan. Also he stated they will try to refinance you under FHA or a convention loan while under the rate lock.
If you can't refinance they may do a Loan Modification to fix your loan. This will help some facing higher payments to freeze their loan so that it does not adjust during this time frame.

But for homeowners like me, who are upside down, I owe $60,000 more than my house is worth it will not help. Also my loan was due to adjust 11-1-07 so it does not cover me. Also I am behind on my payments so it will not help me.

I got a Loan Modificaiton approved recently and my new payment starts 1-1-08 so hopeful I will be ok.

I assume the ones who this does not cover will still be able to work with their mortgage co and request a Loan Modification on case by case basis.

[3properties]

Many people with mortgage payment problems maybe folks with second homes whether bought for vacations or rental investments. I was surprisingly qualified for a second home that I bought because I was contracting 10 hours away from my primary home due to a lack of work in my home state. I was sick and tired of paying rent so I bought with an FHA 3% 1 yr ARM. I was going to sell it in 1 to 2 years which gave me enough time to get back to my home state. After a few short months I accepted a new position back in my home state where I currently live. It's simple, they either give me a loan modification on the now rented property, let me short sell it, or I foreclose on it and go bankrupt on the judgements. I will keep my primary home regardless of a bankruptcy because my wife and I are allowed a $100k equity exemption in our state and the judgements and the rest of our debt should be forgiven based on our state's bankruptcy laws. Thanks to the current dilemma of dropping home values; we no longer have the $100k limit in equity in our primary home and the second home once having $150k in equity is now upside down. How many folks out there can easily foreclose or short sell a vacation or investment property while staying comfortable in their primary home rather than deal with these undervalued headaches?
The current proposed government loan modification proposal will not change any foreclosure statistics in the above cases. There were many speculators during the boom years who bought properties with future adjusting ARM's. Rates on 2nd and 3rd properties are usually higher than primary properties yet this new loan modification program is only for owner occupied property loans. If the speculator's rents no longer cover the newly adjusted payments or like in my case the owner no longer needs/wants the property then what? I would of sold it by now if not so upside down thanks to this whole mess. Now the banks can eat it and write down more losses since IMO they caused this whole mess!

[Moe Bedard]

Obtaining a loan modification on an investment property is next to impossible. There are many, many people in your situation. And also just people in their primary residence that are faced with the same questions.

My questions is, "will it become socially responsible for people to just walk away from their homes?" If it does, then I predict a mass exodus.

[3properties]

Countrywide has my hardship letter and financial information. I will let you know within the next 7-10 days if they are willing to modify the loan on what turned from a second home to rental property. I may need to enter into a short sale or they can spend $60k plus the loss foreclosing on it. The social responsibility has already passed in my opinion. We are at a historic drop in property values, foreclosures, etc. I wonder who should of been socially responsible for that? Yes; a "mass exodus" and that will only add to the current mass exodus in greater numbers. While I don't believe it is socially responsible to walk away; it maybe the only logical and financial alternative for some folks. I don't believe it was socially responsible for the banks, brokers and mortgage paper investors to do what they did.

[6wolverines]

The recent "bailout" is to help investors....not borrowers. Paul Krugman, Princeton University economist and columnist for the New York Times reports...."Relief is restricted to borrowers whose mortgage debt is 97% of the house's value...which means that in many cases, those who get debt relief will be borrowers who owe more on their house than it's worth. These people would be nearly as well off in financial terms if they simply walked away".

Mr. Krugman reports that the plan....HOPE NOW ALLIANCE PLAN....is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental.

Ya' think?!

Thanks for absolutely nothing, Mr. Bush and Mr. Paulson. Still, true to form.

I had a conversation with my mom the other day and she asked, "Do you know anyone, anyone, who is better off now than they were before Mr. Bush took office"? Ummmmmm......a resounding NO! Well...wait....I do know people who are better off now....Think Halliburton, oil magnates, the already wealthy. They are doing just fine while the rest of us are breaking our backs just to keep the kids fed!!!!

ALFRED E. NEUMAN FOR PRESIDENT!!!! (you know, the Mad Magazine guy!) Lord knows, he'd do a better job than Mr. Bush. In fact, I think my dog might even be a better choice and she's suffering from dementia!!!!!

Char

[Moe Bedard]

Yup, the truth has been uncovered and now what are we going to do about it? Are the American people going to stand up for our rights? I sure hope, that soon, we stand up as a nation, unite and fight back against this injustice that is happening to you all.

[FacingNorth]

Originally Posted by 3properties

While I don't believe it is socially responsible to walk away; it maybe the only logical and financial alternative for some folks. I don't believe it was socially responsible for the banks, brokers and mortgage paper investors to do what they did.

This is always an interesting one; I find that your average citizen tends to intertwine and confuse morality with the law of the culture in which they currently live.

Here's my take on this in relation to my first home; I'm 2.5 years into a 80/20 both fixed rates which are interest only for the first 10 years, and a balloon on the second. I had good credit and worked hard to get fixed loans. I was advised when purchasing my first home, that my gross income to mortgage ratio should be 40%, so I bought a small starter 2 bedroom home that came out to 41%, but with bonuses I came out under 40%. I have no HELOC, and I've not upgraded anything to the home, just replaced broken appliances and taken good care of the trees and shrubs. So I did everything possible to make sure that I was living within my means, despite the fact that my wife and I are in our 30s and would have loved a larger home since we plan to have kids soon before it's too late. My wife and I even share 1 car to cut down on expenses and we don't have cell phones, cable and other luxuries. Since we closed on the house, I have busted my ass to increase my salary so that it's now down around 26-27% ratio. But, our house is now about 30% underwater and it seems unlikely that lenders will help us with a modification or short re-fi due to the fact that we can afford the payments. I wish now that I had been more irresponsible and bought a house that was way beyond my means, because then I could have twice the home and the lender might modify me down to payments less than what I'm paying for my current house.

My lender called me to come in to chat a while back, and I told him outright that I'm waiting until they finally start doing write downs to current fair market value, because otherwise it's stupid for me to stay in the house. How can people view a situation like this as immoral to walk away? The lenders purchased my loans from the original lenders, knowing full well that I live in a non-recourse state and that I'm putting zero down on purchase money loans. Whether or not my specific lenders were implicit in actively artificially inflating property values, they were certainly much more aware that things could come crashing down hard, than your average home buyer.

My original intent was to invest in my first starter home, and either refi after 3 years, or wait a couple more and sell to upgrade to a larger place fit for a family. Now, if I decide that it's just immoral to walk away from this situation, then that means that I'm paying interest for who knows how many years it takes for my house to recover the value, not just that I bought it at, but also to account for the interest. With my house down 30% in value, that means to recover to the original purchase price requires an increase in value of 43% from where it's at now (and values will probably drop 15% more in the next year before hitting bottom). That's ludicrous! If the lenders aren't willing to write down to current fair market value either through modification or FHA re-fi, and if I were to stay in the house anyway, that would be a FAR less morally correct decision due to the damage that I'd be inflicting on my family.

.

[tsalazar]

Just as medical debt is some what over looked when trying to obtain credit, will having a forclosure become "understandable" on your credit?

[PMJeff]

Facing North....your story is just about a carbon copy of mine. Our loans are the same. Have you been doing reserach on doing a loan mod? I just started and so far have come up empty handed.

[Texan]

I am having no luck. I have contacted GMAC and Freddie Mac. I just talked to some guy from GMAC who said one of the reasons my mod was not approved was because the "investor" will not approve it. I asked him who the investor was and he said he could not tell me. Something is going on and I am going to try to find out what it is. I think the govt, GMAC or FM is lying to us. Why was I able to meet my monthly mortgage without a problem until a few months ago? Everything went to heck after that and I feel like these people are trying to blame Americans for the problems THEY caused. Any thoughts?

[tsalazar]

I have ASC and the "investor" is Wells Fargo. ASC also says it's up to the investor to grant the MOD or not. GMAC has investors too and are not required to disclose them and most likely won't as you have discribed.

[Yanqui]

You know Shiela Bair has a good and exquitable solution. I posted her workout sheet somewhere on the board. This debacle with the housing crisis has been thoroughly incased with massive fraud from all parties, and the marjority of homeowners where actually caught in the middle of this. granted, we really can't decide just who to blame, and at this point the problem needs to be solved, and the foreclosures stopped; or the system will never regain confidence and rebound.

People are goin to walk away from properties and homes that are underwater and will never see a return on the monies invested to keep them. Anyone that throws money into a home that is underwater and continueing to drop in price has to think very hard on how long at 5% appreciation (if that) a year will it take to break even and and what is coming out of pocket also. For me it doesn't make any sense anymore to keep either property I own when I can file for BK ( credits bad since tring for the mod and missing all my payments) and starting fresh with a rental that's nicer then my home and cheaper.

That's where I'm at. I may try and keep my primary. but I'm not that attached to it any more.

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.

My two properties are 300 thou underwater so It would be a fair trade. ruined credit, two foreclosures, and the bank takes a lose for 300 thousand. I'd say more because no ones really buying; or getting qualified anymore. And they'll sit for awhile empty.

I'm still trying but the only way I'll try for the second home is the mortgage is lowered to current value and they stick with the 4.5 fixed rate for forty years. And do that for my primary also.

[MP927]

Hi Yanqui--I'm on a emotional roller coaster ride daily. Some days I want to do everything in my power to keep the home; other days I'm perfectly content to think about renting a place for $1200 instead of renting my own home for $2200!
Take a break for 2 years from the short sale scar and have a theoretical $1000 saved for a total of $24000 at the end of 24 months . After this, maybe we will become permanent renters. Because how can you "trust" anyone in the future after going through all of the pitfalls of the housing market. I remember when it was so exciting to think of buying your own place...now after 16 years of being involved with it, I don't know if it's all it's *****ed up to be!

[Yanqui]

MP927, Hi! I believe that we were all set up to fail. It was one big scam to make the government look like we had an economy after 911. And now that Bush jr. is gone, the whole thing has fallen apart. Our cash is worthless. people are losing jobs in every cities and every market niche. We have outsourced, insourced and destryed so much of this nations ability to to soveign and self suffecient thatit would make sense to just rent. I hear you on the anguish part. The stress was the biggest decider for me to return to California and try and save the two properties that were my retirement funds and college funds for my daughters.

Everyone tells me I did the right thing in renting the homes and living with my mother until I could get a handle on it. I had rents coming in that could have paid partial payments until I had my surgery and returned to work.

I had my surgery Tuesday and next week I have an interview for some work and I have a freelance camera gig coming up for 20 boxing shows. It's unbeleivable that I could not get any help. I mean they did modify at 4.5 for 40 years but it dissappeared in December and went into foreclosure. As soon as I feel better I have to dig up the copies of the paperwork for that and take them to an attorney. It's just too much to deal with anymore. I really wanted to keep my primary but it's at 2500 a month from 2175 and the numbers just don't add up anymore. We will see.