Loans are adjusting everywhere like the plague and catching homeowners completely off guard. Their payments are going up 25%, 50%, 75%. Their homes have lost their equity. Many are upside down and owe more than it’s worth. But still, many want to save their homes. Their fighting to do whatever they can to find a solution.
Daily I’m blogging and running my forum at LoanSafe.org advocating loan modifications as the only way out of this mess. Meanwhile articles come out like this one today in Smart Money. I’ll pull some quotes and comment on the ignorance of investors and Wall Street in general.
“By Danielle Reed
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Regulators want banks to help subprime mortgage borrowers avert disaster by easing their loan terms, but for bond investors, the cure may not be better than the disease.
Changing the terms of these home loans – which are made to risky borrowers with poor credit profiles – after they have been packaged into bonds leaves investors scrambling to adjust to new terms they hadn’t expected at the outset. That type of uncertainty, the concern is, could make an already unpopular asset class even more unpopular.”
Your unpopular asset will be worth nothing if you don’t modify these loans. People can’t refinance and there is zero equity in their homes. Most can’t afford the new adjusted payment. Many will default and be foreclosed on. Most of them could have had loan workout arrangements that would have saved their homes and lenders/investors tens of thousands of dollars. But daily many more become a statistic in the foreclosure madness.
Who wins there? Where is the sense in that? How many more months can we go before it affects every homeowner?
Let’s face it. Most American homeowners are not sitting in their homes with lots of equity and cash to spare. Most are close to tapped out of the market completely. Many are in debt to their eyeballs. The house of cards keeps falling.
More from Smart Money.
“Effects Vary By Bond Class
On the other hand, because loan modifications may stop some borrowers from defaulting – at least for a certain time – that may help investors who own the very lowest classes of bonds, from BBB-minus to the unrated piece.
These classes of bonds, because they absorb losses first, stand to benefit the most from any measures that can stave off mortgage foreclosures and the hefty losses associated with them.
Also, most subprime securitizations are structured so that if loan delinquencies reach a certain level – called the trigger level – cash flows from the lowest-rated (or unrated) classes of bonds get turned off and redirected to higher-rated classes of bonds, such as those rated AAA.
However, if loan modifications prevent those trigger levels from being reached, it benefits the holders of lower-rated classes of bonds at the expense of the holders of the higher-rated bonds.
Investors’ reaction to loan modification “depends on where you are in the capital structure,” said Gary Greenberg, senior vice president and mortgage strategist for Payden & Rygel Investment Management in Los Angeles.”
The more I dig into investigating the complexities of loan modifications, the more I realize how screwed homeowners are. There are too many people to consider what will affect what and who affects who. The government needs to take the the bull by the horns and get it the hell out of the china shop. Because if we keep letting these jokers control the show then our nation will suffer huge financial loses in every market sector as a result of foreclosures.
Let’s face it, a BIG correction needs to happen. It’s an economic cycle, a major cleansing, and YES, some people WILL lose their homes to foreclosure.
It’s wrong to try and prevent it.
What you are suggesting is to keep people in debt in an overpriced home that they cannot afford.
It’s a temporary fix to a huge problem.
There are too many responsible people who did NOT buy over the last few years because they COULDN’T AFFORD IT.
Those people need to be rewarded.
Those who gambled have lost. It’s no different than going to a casino and placing a bet. There is no reason why the govt should step in and cover the losses.
If the property was worth more today, nobody would be offering part of their profits back to the lender.
I never bought a Ferrari, because I couldn’t afford one.
Plenty of people have fixed rate loans and have been paying a higher fixed rate for the last few years because they didn’t get an ARM with a lower payment for a few years. It isn’t fair to bailout those who gambled.
A bailout will only keep stupid housing prices artificially high.
The time to interfere was 5 years ago and prevent 100% financing from being available. Now is not the time to interfere.
Also, your statement above about “most homeowners” is WRONG.
MOST homeowners DO have good mortgages with equity.
Only people who bought in the last few years AND those who used their house like an ATM machine are in trouble today. I doubt that it is 5% of the population that are in trouble.
An entire generation needs to stop looking at houses as an investment. It’s a place to live. It’s not a stock to be day traded.
When the market was stupidly rising, the bubble was inflating. It was obvious that it would end. The higher it inflated, the bigger the bust will be.
Allowing people to stay in debt at inflated prices is a crime. Their needs to be a consequence for irrational exuberance, which will be more foreclosures than ever before, and the market will seek its own level.
If a house rents for $2000 a month, it’s probably worth about $200K +/-
It just isn’t WORTH $450K.
People who cannot afford their loans need to be foreclosed on and RENT what they can afford. They aren’t going to be homeless.
Asking to be saved from making a poor decision is pathetic.
If one didn’t understand their loan, they shouldn’t have one.
It’s a lot easier to understand a rental agreement.
Sorry, but I just cannot agree with wanting a bailout or any loan modifications. It’s just wrong.
I’m sorry but judging from my blog and my views, I’m assuming you knew I would have to 110% disagree with just about everything you said here. Especially since I am a big loan modification advocate.
I understand that the real estate market is cyclical and these is ups and downs and yes, maybe we need some corrections in the market. It was getting over inflated quite a bit and over hyped. Many gambled, invested and did it all for the wrong reasons. Many will lose their homes and in fact many already have. So, I agree with you there.
I don’t know about you but I am on the front lines daily. Fielding calls and emails from homeowners who are trying to refinance out of these toxic loans that have just adjusted 3,4,5% higher and they cant refi, they cant get a loan modification. These are the same borrowers that QUALIFIED for a REAL MORTGAGE using REAL UNDERWRITING GUIDELINES for the lenders to DETERMINE if the borrower that is APPLYING for the REAL LOAN can AFFORD that there MORTGAGE that they are APPLYING for at the BANK using UNDERWRITERS that are EMPLOYED by the LENDER to MAKE SURE that there BORROWER can PAY THEM BACK once they LEND THEM THE CASH.
Sorry for all the caps but I have to get my points across.
Many of these homeowners were promised they would be able to refinance out of these loans by licensed professionals who thought they had crystal balls or something. They must have right?
I’m going to pull a quote I said in another post here.
“OK, so what you are saying is that these loans that people got for the homes they purchased over the last 5 years are homes they can’t afford? Didn’t they have to “qualify” for these loans to buy the homes using underwriting guidelines that the lenders control to make sure that they can “afford” these mortgages that they would have to ultimately be responsible for?
Or were those fake loans that they had to qualify for using lending guidelines that are in place to make sure that money isn’t given to people who can’t “afford” to pay it back?
Most of the homeowners I speak with have paid their mortgage on time up until their loan adjusted. Yes, they new the risk of taking and adjustable mortgage, but they were told 99% of the time by licensed professionals, “Don’t worry in 2 years we’ll just refinance you out of that terrible loan into a new fixed mortgage. Please, sign here sir.” I bet if these same licensed professionals said, “You’ll never be able to get out of this toxic loan. The payment will go up 50% in two years and the bank will foreclose on you, ruining your credit for another 7 and kicking you, your wife, 3 kids, dog and goldfish on the street.”
How many people do you think would have taken the loan then? My guess is, is very few.”
It’s beyond loan modifications to save people’s homes. It’s now about saving or entire economy. Mark my words. If the Congress doesn’t force these lenders and servicers to modify these loans of borrowers who “qualify”, we will go int a massive recession from the fall out of what you are suggesting here. Housing affects America’s economy more than you think. Haven’t you been watching the news and reading the gloom every day. It’s just begun too and it will snowball and engulf every homeowner. One’s that even could “afford” it has you suggest.
Well, hell, at least you’ll be able to buy a home then.
moe…i jus came across ur website today and i wished i knew about it sooner. Me, my husband and 3 kids(no dog or goldfish) have just inquired w/our lender re: a loan modification. in fact, i jus wrote our letter of hardship today. but going back at what u were saying about those licensed professionals…of course, if they told us that we would end up losing the house in 2 yrs anyway. i would never in my right mind have signed my life away. u would think that after having to sign a zillion papers on that “special” day, someone would’ve warned us about what we were actually signing. ha ha ha
R.C. Did you hear back from your lender re the loan modification? I am considering doing same and am wondering if anyone know the criteria for qualification? They gave me a form to account for my debts and income, i am about $1500 short including things they way they currently are, but am wondering whether or not that is too much or too little to qualify for their modification requirements. Does anyone know?
I have for 2 months been attempting the loan mod w/ wfhm.It is a night mare I continue to do all asked .income/debt assets etc.every day it is something new they want.also the department and person I speak with changes day to day. I have never been late. mortgage gong from $1399 to $1800 this minth.It was suggested to me just dont pay it,then they will talk to you. how dumb is that?so they destroy my credit first.then dont qualify for a decent rate and so it continue. every 6 months my house payment goes up the value goes down until they force you into foreclose. sue you for the difference force you into bankrupty. don.t think because you have equity and a fixed rate that you’re not affected. the homes around you start to be vacant the grass turns to weeds the snakes ,rats and looters come.Your nice neighborhood is now the slums, with its own crack houses .Your property value goes down and you can’t get out because people dont want to live in a bad neighbor hood and you too have no equity in your house.
DON’T THINK FOR A MOMENT THAT YOU ARE BETTER OFF. IF SOMETHING ISN’T DONE YOU TOO WILL BE A CASUALTY.
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With the mortage crisis and subprime loan borrowers falling behind on their payments, it is a nightmare. With the house prices going up the roof in 2004, don’t you think the government should have stepped in and have done something about regulating this? Then I guessed, this situation where foreclosures are proliferating could have been prevented.
Not all subprime borrowers are speculators. They are just middle class people who would like to live their american dreams and to see the fruit of their labors. With the dream of providing a decent place for their family and seeing to it that their hard earned money go to the right place, I don’t think that the blame could be theirs only. I think the people are most to blame for this fiasco are the predatory lenders , brokers and agents whose main intentions are to deceive the consumers that they can afford it and find ways to get them in the door with sweet promises that the house prices will never go down. It all boils down to greed.
With more foreclosures on the way and big losses being suffered by lenders, I think this is not the time to be hard nosed with dealing with borrowers. They should work with them not to suffer foreclosures. This lenders should think about preventing more inventories which would contirbute to more losses in their parts. If this situation continues, then it will sure forced our economy into a recession. The housing market is a big gauge on our country’s economy health.
Well said JC
I actually bought a home in June 2005, I qualified going full doc on an 80/20; the first being an ARM. I knew what I was getting into but then the company I was working for filed Bankruptcy, unannounced.
I had to sell my home via short sale. This system is ending. Things will not keep going on like this. Pretty soon we will be able to build our own house and live in it.