By Moe Bedard
American Securitization Forum, which represents companies that issue mortgage backed securities, as well as investors, loan servicers and rating agencies, issued a 34 page document outlining guidelines for servicers to follow in streamlining refinancing or loan modifications on adjustable rate mortgages that are scheduled to adjust in the next 2 1/2 years.
ASF Executive Director George Miller said the agreement provides a common framework to evaluate borrowers’ situations, and expedites processes for loan servicers to pursue refinancing and loan modification options on a more systematic basis.
Let’s go over some of these details which now seem to be set in stone;
- Applies to first mortgages only
- Adjustable rate mortgages fixed for 3 years or less (ie: 2/28 & 3/27 ARM’s etc.)
- Only loans originated between January 1, 2005 and July 31, 2007
- Have initial reset rate between January 1, 2008 and July 31, 2010
- The streamlined loan modification approach would be begin before the initial reset and typically should begin 120 days prior to the reset of the borrowers rate
- If loan to value (LTV) or cash loan to value (CLTV) is below 97%, servicer may obtain an updated value via desk top appraisal (AVM) or broker price opinion (BPO)
- All servicers of 2nd liens “should” cooperate fully (should does not mean mandatory and can be a HUGE issue)
Borrowers will be divided into 3 segments;
- Refinance - Borrowers who are likely to be able to refinance
- Loan Modification – Borrowers unlikely to refinance
- Loss Mitigation – Borrower is not current and demonstrating a difficulty in meeting the introductory rate
Borrowers in Segment 1 – Refinance
- Current - Means the loan must not be more than 30 days delinquent and must not have been delinquent 1×60 days in the last 12 months.
- Loan to Value Test (LTV) - All current loans with an LTV (based on 1st lien only) greater than 97% are deemed not eligible and will be placed in segment 2.
- Not FHA Secure Eligible – All current loans that otherwise do not satisfy FHA Securerequirements, including delinquency history, debt to income ratios at origination and loan amount standards are within segment 2
Borrowers in Segment 2 Loan Modification
- Occupancy - Borrower currently occupies the property as a primary residence
- FICO Score Test - If the current FICO score is less than 660 and is less than a score higher than the FICO score at origination, the borrowers is considered to have met the “FICO test”
- Rate Adjustment Test - The servicer determines that, at the upcoming reset, the payment amount would go up by more than 10%
- Can’t Meet the FICO Test?- The servicer will use an alternate analysis to determine if he borrower is eligible for a loan modification as well as the terms of the loan modification. This would be done on a case by case basis with a full analysis of the borrowers debt to income
Devilish Detail – For borrowers that are eligible for a fast track modification, the fast track option is non-exclusive and DOES NOT preclude a servicer from using an alternate analysisto determine if a borrower is eligible for a loan modification, as well as the terms of the modification.
To put this in homeowner terms -Lenders and servicers DO NOT have to fast track loan modifications and if they chose not to and they can do whatever the hell they want.
Borrowers in Segment 3 – Loss Mitigation
- Moe Alert – Borrowers in segment 3 will be stuck in the never ending grinding wheels of the servicers loss mitigation department and will most likely have (if they are lucky) a 1 in 100 chance of working some kind of loan workout or loan modification with their lender. In other words, much of the same ol, same ol.
I am going to stop this post here because I am pretty upset with this plan. I had reported yesterday that I am cautiously optimistic about this new Hope Now deal and that the devil is in the details.
The devil has reared its ugly, horny head in this ASF guide.
Anyone that is on the front lines of the mortgage and foreclosure crisis and understands the guidelines set above by the American and Securtitzation forum is “NOW” fully aware that this plan will help “VERY FEW” homeowners.
I called this a “big” step forward yesterday by Paulson and Hope Now. I’m going to recant that statement and say, “This is an ity bitty baby step forward and it looks like many homeowners and housing counselors will continue the “same” battle they have been fighting with mortgage servicers before this new plan was announced.
“A 100 calls, a 100 faxes, 100 headaches and 100 foreclosures that could have been prevented at a time.”
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I dont understand all this BS in the news about remodification,freezes and refinancing. First of lenders are NOT cooperating with customers at all. I have a friend who is trying to reach Countrywide for over a month and they keep telling him the negotiater will call soon (I was born at night but NOT last night). I have a client who is serviced by litton mortgage and same thing with this story. We tried calling 888-995-HOPE. I guess you have to HOPE to get your call answered. I think all the politicans have adjustables and they will freeze their rate (Thats what MR. Bush tried to outline yesterday). Everybody is focused on what to do and how to save the economy instead of asking who was responsible for this. Why would you triple Americans mortgage payments while their income remained flat or even went down and expect the economy to work (I guess you have to be a special kind og stupid). We should have never artifically run up home prices on Americans by these levels. Come on guys let the home prices come o n down where they belong. 80% correction is on its way. Thank YOU FOR THE UNAVOIDABLE REAL ESTATE CRASH OF THE CENTURY
Bobo,
Yes, it is ridiculous trying to get help and the reason I started this blog and my forum at http://www.LoanSafe.org.
If things do not get better and more help for homeowners who already are upside down, then we will see a mass exodus of homeowners that just walk away and abandon their homes.
Just think about all the Neg Am loans is California. Most are paying the minimum and buying time and cheap rent in a million dollar home, till they can’t stratch it any longer.
The Option ARM’s will most likely be the final nail in the coffin for California’s Economic death by mass foreclosures.
I am in Corona, Ca., the Inland Empire and we have seen prices go down to 2002 levels in less than a year. 5 years of gains shaved off and 1 in 43 homes is in foreclosure. It was just 1 in 84 in September.
It is very fustrating. My husband and I re-financed our home 3 yrs ago with Wells Fargo, (before 2005), we have been in our home for 10 years. We had hoped we could re-finance our home before our loan adjusted which it did adjust on 11-3-2007. We could never re-finance because somehow our home would not appraise for what we owed. Go figure, how Wells got it to appraise for so much I will never know. We have been in Loss mitigation for 5 months now with no results. Our payment now is more than we can pay and still have living expenses (and I am talking about things like utilities and groceries). The only thing that qualifies us for this plan set forth is our credit score which has been trashed by all this. All we asked Wells to do was give us a fixed rate and add some years to mortgage which they refused to do. We could have kept house and they would still get their money. Mind you we are not stupid people who bit off more than we could chew. We really thought we could re-finance before the adjustment. We had almost perfect credit before all this drama. Maybe we should have just filed bancruptcy 3 years ago instead of re-fincing house to consolidate bills. I think we would be better off today, and that is a shame. Oh yea , our loan also re-sets every six months now. I am about to hand over the keys. I am sick of it.
LETS JUST ALL WALK AWAY FROM OUR HOMES AND LET THE FOREIGN INVESTORS FIGURE OUT THE REST. THIS WOULD BE A GREAT LESSON FOR WALL STREET. I GUARANTEE YOU THEY WOULD NEVER LEND US MONEY AGAIN.
This plan is just wrong. More than 60% of rate resets have already happened. what about them? Why can they help them but people who reset after jan 1 2008? this does not make at all!
The American Securitization Forum wrote the rate freeze presented to the public by the President and the Treasury Secretary.
I found it on americansecuritization.com.
The framework allows servicers to modify loans without borrower signatures
Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 13, third paragraph from bottom of page
This solution is depressing. Here is what one industry leader had to say:
“Why would anybody in his right financial mind agree to a five-year price freeze, especially when we’re staring in the face of possible inflation?” asked Roger W. Kirby, managing partner at Kirby McInerney, which has represented investors in class-action lawsuits over securities. “Mr. Paulson has overestimated the generosity of people on Wall Street.”
This is from a very interesting article posted in the New York Times today. You can read it here:
http://www.nytimes.com/2007/12/07/business/07mortgage.html?pagewanted=1&_r=1&th&emc=th
I can’t believe that someone has written they’ve been in Loss Mitigation for five months that is beyond outrageous!
Here’s some more quotes from the same article, entitled: “In Mortgage Plan, Lenders Set Terms”
“Talk about moral hazard, we’ve all told people, don’t go any more deeply into debt. Now we’re saying that people who go more deeply into debt will have an advantage over people who don’t go more deeply into debt.” ~ Representative Barney Frank, Democrat of Massachusetts and Chairman of the House Financial Services Committee.
“Tom Deutsch, deputy director of the American Securitization Forum, which represented investment funds in the negotiations, made it clear that any rate freeze would be strictly voluntary and based on what investors decided was in their self-interest.”
“This plan only really amounts to a set of recommendations for lenders that is sure to meet some resistance from investors” ~ Paul Ashworth, Economist at Capital Economics.
If there had not been stated income loans, the prices would have kept at a reasonable level, instead of the outrageous inflation. If people can’t afford, then they don’t buy, if they don’t buy, demand goes down, so does the prices. Simple as that.
Coupled with the fraud, and bonus/commission pay structure, you have a big mess.
I say let it take its course. I had to take less money than I made in the industry, and I was smart enough to get a 30 year fixed. The glut of money and refi mania created an artifical economy, even in the automotive industry. People used their houses to buy cars.
You can blame the government for that …. they took away installment and credit card interest as a deduction. So people preferred putting car payments with the house payment. It goes deeper still.
any efforts to artificially prop up the real estate market only delay the day of reckoning. flood the basement and send in your keys. as Hank Paulson would say, “BECOME A RENTER!” what a relief to learn only few borrowers would be eligible for a BAILOUT under the HOPE NOW ALLIANCE (one of many “non gov’t” bailout efforts). for everyone hacking at the leaves of the problem, an anonyomous few hack at the root. moe–you and your website are a disservice to all market participants. is it your policy to delete all comments that present opposing views?
The American Securitization Forum wrote the rate freeze presented to the public by the President and the Treasury Secretary.
It can be found it at americansecuritization.com
The framework allows servicers to modify loans without borrower signatures.
Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 13, third paragraph from bottom of page
According to the American Securitization Forum’s Framework for the rate freeze, borrowers will not have to document current income to be eligible for refinancing, even if they received initial loans with embellished incomes
Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 3, FICO test
Counseling and modification expenses are to be charged to securitized trust cash flows, so service providers, like Countrywide, which has a representative on the board of the American Securitization Forum, will profit from the process.
Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 7, first full paragraph
Appraised value for modifications are based on the date of origination, even if the current value is much less.
Source: American Securitization Forum, Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, Executive Summary, December 6, 2007, page 2, second bullet
Some of the firms that may profit from the rate freeze are members of the industry group that authored the plan.
Re: Lisa Stewart
First, how is it any surprise that your home was worth more three years ago than it is today? Second, you state that you have been in loss mitigation for over five months now yet your payment only re-set last month? Sounds like your troubles had absolutely nothing to do with your mortgage…
Let’s say X WANTS to buy but CAN’T fford to buy a house, but Big Bank comes along and hands X money to buy it, no income check– nothing “Here you go, X, here’s a half a million dollar house”. Big Bank accepts bogus paper work overstating my income and “creating” assets for me, then when in a couple of years it becomes clear that I can’t afford to buy, who’s fault is it that I was ABLE to buy?
I might have wanted to but I would not have been A B L E to buy without the help of the very creative Wall Street investors who made it oh so easy to get cash with their exotic loans and the brokers who peddled them with such zeal.
And they damn sure didn’t do it for so long for no good reason.
They were getting their share and then some. Now that the wells run dry, it’s Mr. X that’s stupid AND responsible?
I don’t think so.
Does personal responsibility mean nothing anymore? Do we now blame the credit card company’s, the auto manufacturers for offering 0%, the Rooms to Go’s for offering no payments for 4 years? Where does it stop? Somewhere in all of this, the individual IS responsibility for his or her own actions – plain and simple…
Wow, there are very few people posting comments here that have a clue. I agree with the poster who said that Moe is doing a disservice to the nation. This kind of socialist rhetoric sounds like Hillary talking. You can’t take away the discipline and accountability of the free market. If you allow the market to resolve it’s own problems, it will.
The banks are in business to make money, no? So, if they take huge losses on all the bad loans they wrote to people who could not truly afford them, wouldn’t it make sense that the banks would learn a lesson and change their guidelines to avoid this occurring again? Oh, wait, they already did that! Now that the financing which allows people to get into homes they cannot afford has gone away, that means all those buyers no longer have the ability to pay those inflated prices. Guess what comes next? Demand at those prices plummets, and so prices follow suit.
Do you really think the government should be bailing people out for being irresponsible? If they do, then why shouldn’t they just go out and be irresponsible again? For that matter, why shouldn’t I and everyone else do the same? Don’t you people see what’s wrong with this picture? Just because someone managed to find a bank willing to lend them the money to get into a house they couldn’t afford, does that entitle them to a taxpayer bailout to stay in that house? I thought when people took out a mortgage, it meant if you don’t make your payments you lose that house? What’s changed, that I haven’t heard about?
If the government can step in and force the alteration of terms of a bilateral contract, then why would anyone want to invest in anything American ever again? Might as well put your money in a central american bank, or buy land in Mexico. The government can just take it away from you whenever they feel like it.
Just because credit is offered, doesn’t mean somone has to take it. Smart people don’t get payday advance loans, at 200% interest. These homeowners who should be renting are the same people who fill out every credit card application they get in the mail.
The way these things usually work is this is the came’s nose under the tent, or however that saying goes. They come up with some scheme that doesn’t do much so it doesn’t enrage anti-bailout people too much. Once we accept *any* bailout tho, it’s just a matter of degree. Next the gov’t and industry — why do you think the only ones to come out in favor of this are the lenders!? they’re definitely thinking they’ll make money, or at least not lose as much — anyway next they say, aw, see this really helped Mr and Mrs Smith of Topeka, they’re good people, but unfortunately Mr and Mrs Jones of Peoria didn’t qualify because of some really trivial point. So they expand the program. And they come up with new programs. Pretty soon the lenders have been bailed out and eventually we the people are on the hook for guaranteeing all those junk mortgages.
If you ask me, the government should have been enforcing the law, stopping all this rampant fraud. And it’s not too late. They could still go after the liars and the cheats.
Harlyman- thanks for bring all those issues to my attention in regards to the ASF guide. I am going to address those issues in a post this week.
Ron and Joe – Do you really know what “truly” happened in the mortgage industry over the last 5-10 years?
Ron – No I do not delete opposing views because I am a man and I can “understand” that not everyone is going to have the same “views”. People tell me to f@#k off and I could care less. Especially when it comes from a homeowner hater.
I know who these people are. They are the capitalistic pigs that have no “true” idea of what “really” is going on in the streets and what has went on over the last 10 plus years. Plain and simple.
You say, “Any efforts to artificially prop up the real estate market only delay the day of reckoning.”
That is the biggest joke that I keep hearing over and over from you capitalists!!!!!!!!
There is no way in HELL that anyone can prop up a real estate market that is spiraling out of control with a simple rate freeze for a very “small” group of homeowners. Couple that with the fact that this market to begin with was “ARTIFICAILLY” created and resembles a ponzi scheme. Then add on a super duper layer of massive fraud, corruption, thievery and deception and you have the market that was created by puff and fluff.
You can’t let that type of market just “naturally” run it’s unnatural course!!!!
How the hell are you just going to say, “moe–you and your website are a disservice to all market participants.”
FYI- I am here for the struggling homeowner and not the “market” . The homeowner that has a home they can afford, but can’t afford the damn toxic and exploding mortgage that you and your market participants created to get you all filthy, stinking rich and leave them holding the toxic sludge bag……
Joe – Step down from your ivory tower and come down here to the streets of the middle class and take a whiff of the crap. Because Joe, it’s pretty damn $hitty down here right now and that aroma from all the feces will reach you and your buddies in the ivory towers soon.
You say, “This kind of socialist rhetoric sounds like Hillary talking. You can’t take away the discipline and accountability of the free market. If you allow the market to resolve it’s own problems, it will. The banks are in business to make money, no?”
Yes, the banks are here to make money, agreed. The market that you see today was artificially created to begin with. Get with the times. It was based as I said above on a ponzi scheme to get everyone rich at the top and leave everyone on the bottom, screwed.
It is quite evident that is what we are seeing today. The rich got rich and now the middle class and the poor get fu#@ed!
You and your capitalistic ill informed rhetoric will not change my views of the facts and reality that I am in front of every single day. The fraud I see and the scams by “market” participants far out weigh by 1000 fold, ant type of homeowner fraud.
Again Joe, Ron and all the other homeowner haterz and critics have no clue on how the mortgage business operated over the last 10 years.
These people that you call irresponsible were extended credit based on underwriting guidelines by lenders to “determine” their credit worthiness, purchase power based on income and long term risk..
What that means guys, “THE LENDERS WERE IRRESPONSIBLE!”
The homeowners was many times “prequalified” by a broker or lender to “determine” their purchasing ability and guided many times by a licensed professional to give them “professional and ethical” advice.
Most of these “professionals” just sold what the “market” i.e.: lenders, were offering in regards to lending products that were being “offered” to these people. Everyone knew they wouldn’t be able to afford the resets on these mortgages. But everyone was told, “Don’t worry, we’ll get your FICO scores up over the next couple years and place you in a 30 year fixed loan. Now, just sign here.”
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.
You see, every loan that is originated has to be sold to the consumer before it becomes and origination. Many loans that were sold over the last few years, as you know, were adjustable rate mortgages. Consumers never say, ” Please put me in an ARM that adjusts in 2 years.” No they were “SOLD” these loans. Here was the typical sales pitch by licensed professionals. ” I know that you didn’t want an adjustable rate mortgage but that all you qualify for. But don’t worry Mr. Jones, I’ll be able to refi you in 2 years and get you into a fixed loan, no problem. This is just a band aid loan because you have tarnished credit, can’t prove income and you don’t have a dime to your name.”
Do you think these same homeowners would have been sold the loan if it went like this? ” Here’s your loan Mr. Jones. It’s and adjustable rate mortgage that will shoot through the roof in two years, your payment will double, you’ll be screwed financially, the bank will eventually foreclosure on you, ruining your credit for 7 years and your life will leave you because she’s sick of you drinking cheap scotch on their dirty linoleum floor.”
I guarantee that if that was the case then we wouldn’t be where we are at now. But what can we do? We can’t turn back time and we must look forward to solutions.
Now add in the massive fraud (not the homeowners) but the market participant and you have an artificial fraudulently created market that we see today.
And what does an artificial market do? It doesn’t go pop, it goes BOOM! And we are seeing theses explosions in the most fraudulently and artificially created, real estate markets in the country.
i.e.: Stockton, Ca. , Santa Ana, Ca., Las Vegas, Nv. etc…..
Do you think it is just coincidence that everyone bought a home they could not afford in these communities? Hell no, these communities were ran by SHARKS that preyed on minorities fueled by their greed because these were higher dollar commissions,
I here the idiots on CNBC, “We don’t have foreclosure problems in every state. Only California, Florida yada, yada…….. Homeowners could not afford these homes and our investors are expecting returns on these mortgages”
And these idiots are paid high dollars to give their ill informed opinions? Barf!
Well Mr. Capitalistic idiots, there are more foreclosure in these states because that’s where lenders, brokers and scammers concentrated their efforts based on;
#1. How much money they can make on each toxic loan
#2. How big is the population, so they can sell more toxic loans?
Pretty simple fricken formula. Not rocket science. Just common sense.
Common sense like I have to recognize “reality” and the “truth” of what really happened and why our great nation is in the position it is today.
Joe, you said:
“Just because someone managed to find a bank willing to lend them the money to get into a house they couldn’t afford, does that entitle them to a taxpayer bailout to stay in that house?”
“I thought when people took out a mortgage, it meant if you don’t make your payments you lose that house? ”
“What’s changed, that I haven’t heard about?”
“If the government can step in and FORCE the alteration of terms of a bilateral contract, then why would anyone want to invest in anything American ever again? ”
JOE, this plan is NOT a tax payer bail out. Tax payers will pay nothing for this VOLUNTARY loan modification participation plan. If you don’t like it, then don’t pay your taxes, see how far that will get you.
The problem I have with everyone who shares your opinion is that your thinking gives no responsibility to the bank for soliciting risky loans and peddling large sums of cash to people who could not afford it, in many cases forging documents, creating false bumped up appraisals and failing to disclose hidden incentive fees they gave brokers for the sole purpose of selling these loans so that they could become stinking, filthy rich.
What responsibility does the bank have for selling exotic, outrageous, doomed to fail loans to hard working Americans, bombarding them with credit card applications and pay day loans non stop, when they KNEW without a doubt a great majority would not be able to pay them back and BECAUSE they couldn’t pay, they’d get to collect exorbidant finance charges?
Whenever this question is posed, I hear the old capitalism excuse, but please can we call it what it is. It’s PREDATORY. It is the banks preying on people who are not well to do, have limited or fixed incomes so that they, the banks, can become increasingly wealthier.
Are we saying that in the name of capitalism this is some how okay?
IT IS NOT OKAY!!!!
The banks, the Wall Street investors, the crooked Loan Officers and brokers, they were all banking (pardon the pun) on this cash cow milking out forever. Well, they banked and lost, and that is completely, unequivically, absolutely THEIR responsiblity.
bad porgram good for the banks only
they will now play with people lifes like
they alwas do
Listen thanks Moe, why don’t you explain to me what “really” or “truly” (whatever that means) happened in the marketplace over the last decade. My experience has been…
Cheap money offered by the Federal Reserve after the tech stock bust and product innovation (e.g., pay-option, 40yr amortization, hybrid-arm, etc.) enabled unsustainable house price appreciation during last several years. family growth and wage growth have not kept pace and do not support the house price appreciation we witnessed over the last several years. inevitably, the market will correct itself to align with its fundamental drivers. attempts to interfere with the correction exacerabate and delay the day of reckoning. the market must purge itself of these problem loans before it can recover. remember japan and the real estate price bubble it experienced, and how long it took to recover.
the federal reserve lowerered the fed funds rate a total of 5%, begining in the fall of 2001. cheap money fueled housing demand. housing demand fueled house price appreciatiation and encouraged lenders to increase capacity to support rising volume. As markets experienced dramatic house price appreciatiation, speculators entered the market. speculators assumed house prices would continue to increase into perpetuity. speculators bought homes with the expectation of flipping the property in the near term or that they would otherwise avoid any rate resets and payment shock.
as housing became unaffordable borrowers used, among other products, hybrid-ARMs, pay-option, and 40yr amortization mortgages in order to pay inflated prices. these products no doubt contributed to the unsustainable increase in house price appreciation.
finally,the federal reserve then began raising interest rates; this had the effect of slowing housing demand. as housing demand slowed lenders were left with excess capacity. to utilize capacity lenders relaxed underwriting standards to keep volume high. this had the effect of leaving many borrowers with unaffordable mortgages. however, i will point out, it is incumbent upon the borrower to understand the risks he is assuming when signing a mortgage contract, and further, that it is absurd for ARM or Pay-option borrower to suggest that they did not understand that rate resets may cause payment shock or that paying less than the regular P&I amount may result in negative amortization.
I strongly urge you to consider the effects of the recent bailout efforts announced by treasury secretary paulson and HUD secretary jackson, as well as the effects of modernizing FHA, increasing the loan limits and portfolio caps of Fannie Mae and Freddie Mac (i.e., shifting credit risk from private lenders to the FHA, Fannie Mae and Freddie Mac). each of these bailout efforts attempts to artificially prop up sinking real estate prices and unfairly penalizes those who made prudent financial decisions, while rewarding those exhibiting the most reckless behavior. Sunlight is the best of disinfectants.
JacMac: Banks that were soliciting risky loans are taking it on the chin and shareholders (meaning owners) are bleeding too. I agree government should have been stepped in sooner and restrict products like Stated Income and Option Arm and other types of risk layering. Which btw they did do for GSEs. Few decades ago Texas went through similar issues like we are going on national level and they have pretty strict LTV/CLTV guidelines on various products meaning choices are restricted legislatively for all mortgages whether GSE or not.
However this is a free country meaning people are free to make choices and some choices turn out to be quite bad. And it appears we are not willing to restrict people’s options before it is shown quite conclusively that some options should be removed off the table.
As far as choices already made: you can not undo them, there is no magic wand or time machine. Borrowers that took on loan amounts more that 8-10 times their income will not be helped. Short of paying down their mortgage to more reasonable amount by taxpayers there is NO HELP for that kind of borrower.
If anyone is looking for government to MAKE servicers/investors modify loans so the borrowers can stay in their homes, it’s not going to happen. That would be far bigger hit to US finances than any foreclosure tsunami I can think of.
Ron, I apreciate your views and I agree with the course of events you had stated above and thanks for taking my rant in stride.
I also agree that the market does and will purge itself of these problem loans that are being held by speculators and scammers that were in to make a fast buck. Trading and flipping homes in a massive mortgage ponzi scheme or just to increase their wealth.
My heart does go out to some of these people that were just trying to invest and make a better life for their families. FYI Ron, a lot were doing just that. They are not bad people or scammers. Just regular middle clas folks, trying to move ahead in the rat race. Unfortunately, their attempts have failed and they have reversed their goals by going after wealth.
But I am a realist and any investment is a gamble with potential loss. Most all these people will be ruined finacially and they know it. No suprise there. It sucks and I feel for them, well most of them.
The market is correcting Ron and it will continue to and go down to reasonable levels as you wish
My question to you is, “why would interference in the market by assisting the homeowner that can afford their original start rate and it is their primary home.” What is so bad about that? Yes, it is a bad loan and any loan that corners a borrower to where they cannot get out of it is predatory in my eyes.
Let the market purge out the “ones” who are not legitimate homeowners and let the homeowners who were truly trying to just own a slice of the American dream keep owning their homes.
I just don’t understand the sense of letting a borrower who is stuck in an adjustable rate mortgage, has or had good credit, that has been paying on their mortgage dilligently and just can’t afford the reset rate. Why not fix that mortgage, so they can stay in their homes?????
Not everyone needs to be a casualty of this plan your wish for.
These reset rates were unrealistic to begin with and these returns promised to these ill informed investors somewhere in the chain of the ponzi scheme was just snake oil packaged as mortgage backed securities and sliced and diced so know one knew what the hell they were buying. All they have was 7-8-9% returns and they bought the snake oil………..
Do you realize that if we continue going down this route and no help is offered in any way, that we will have a mass exodus of people that just say screw it and walk away from these homes?
None of these banks are solvent. Fannie Mae, Freddie, Countrywide, they are ALL on the verge of BK. They are prolonging write downs and not reporting the real quarterly losses because of their clever ASF guided accounting practices.
If we just let an un-natural market naturally implode, then it will lead us into a massive recession beyond your wildest dreams and evey bank in the nation would be out of business.
The rich may create the markets but the middle class fuels them. the middle class are the ones makeing the every day purchases that are dying. The middle class are the ones who buy Fords and GMC’s and that is dying.
What you are proposing would drive most of the middle class into the ground and thus bridge the ever widening gap between the poor and rich.
I suppose Ron, that you are well to do. You wouldn’t happen to be Ron T. the hockey player?
That’s how I feel this debate is. The well to do’s against the poor and middle class.
Think about it Ron. If you were in a home you could afford, love, raising your family, paying your mortgage, living pretty good and then your rate was going to explode because some broker sold you a loan you didn’t fully understand.
We wouldn’t be debating this right now becuase you would be trying to save your American dream. Agreed?
Alan, you said, “If anyone is looking for government to MAKE servicers/investors modify loans so the borrowers can stay in their homes, it’s not going to happen. That would be far bigger hit to US finances than any foreclosure tsunami I can think of.”
You’re right and that why there will NOW be a full assault on these lenders and servicers by us consumer advocates and attorneys who are just going to bring massive law suits and clog up our court systems until they get a fricken clue and work with people.
So, let them continue to play hardball. I am in for the fight and so are a million other people.
FYI, it’s already in the works and there are way more of us then them.
You will see more class actions and individual law suits from this over the next 2 years then our country has seen over the last 100.
Just wait and see.
Do I want this? No. I want amicable solutions and fair lending pratices. But it looks like that is never going to happen, so I am ready for the fight and my boots are on.
Moe: there are several points you make that i want to comment on. but first let me respond to your question:
“My question to you is, ‘why would interference in the market by assisting the homeowner that can afford their original start rate and it is their primary home [be bad or wrong]?”
I don’t have a problem with this. If someone has demonstrated a consistent willingness and ability to pay at the starter rate over 12-18 months (and we should keep in mind that these starter rates generally range between 7-9%…well above rates for prime borrowers), the property is owner-occupied, then I have no issue with freezing their rates indefinitely. clearly these 2/28s and 3/27s were never designed or underwritten to perform at the full contract rate after reset (which might be 300bps higher after first reset). among such loans made in 2006, nearly half had LTVs above 90%, and more than half had DTIs above 40%. problems inherent in these loan structures were masked by house price appreciation during the past several years. absent HPA, defaults and foreclosures mount.
that being said, i agree only with applying loan modifications and rate freezes to the subset of subprime borrowers described above that make it to their rate reset relatively free of serious past payment problems. if borrowers could not afford mortgage payments at the starter rate, they made a reckless and imprudent financial decision and should not benefit from a government bailout. and let’s put this subset and the broader subprime market into context:
Total outstanding mortgage debt: $10.4 trillion
Total outstanding subprime Loans: $1.2 trillon
Subprime 2/28 and 3/27 loans outstanding: $496 bln
% of outstanding subprime loans that were purchase loans: 43%
% of outstanding subprime loans that were cash-out refis: 49%
clearly i’m unwilling to support a bailout for any homeowner unable to afford a mortgage resulting from a cash out refinance. i reject the idea of bailing out homeowners who used their equity like an ATM machine to buy cars and pay off credit card debt. i would only support rate freezes for homeowners who obtained subprime mortgages for the purpose of purchasing an owner-occupied dwelling. the fact that many of these mortgages were cash-out refis is overlooked.
Ron, you are one of the most reasonable capitalists that I have ever debated with.
Your above figures are correct, but you have to keep in mind that there are a lot of 5/25, 7/23’s interest only’s in that class of subprime. Not just the 2/28 and 3/27’s.
Then you have the Prime market which isn’t so prime. There are a lot of ARM’s in that class that will explode. Then you have the negative ammortization loans that have yet to explode in that “so called” prime class.
You said, “that being said, i agree only with applying loan modifications and rate freezes to the subset of subprime borrowers described above that make it to their rate reset relatively free of serious past payment problems. if borrowers could not afford mortgage payments at the starter rate, they made a reckless and imprudent financial decision and should not benefit from a government bailout.”
Are you aware of how many borrowers that fit in to the above class are gettig foreclosed on? It’s A LOT.
I don’t have figures, but I would say in my experience, that about 40-50% of the foreclosures so far, have been this class of borowers. 400,000 plus foreclosure could have been averted if a “real foreclosure defense plan was in place”!
I agree with your cash out theory to an extent. However, it is too broad of a blanken and yes, many of these were cash out refi’s to pay debt. However, I don’t think we should penalize a borrower who was doing this under the guidance of a licensed professional who has a fiduciary duty of utmost care and responsibility to their clients.
There are just WAY too many homeowners in this class to let them just fall into foreclosure. This theory would further drive our economy into a recession.
These same people will most likely default on ther consumer credit debt, then file for chapter 7. Why not at least let them keep their homes for the sole purpose of saving our economy and local economies.
Ron, you do realize how big and how ugly this mess is right?
I feel it is WAY BEYOND what is right and what is wrong. It’s about doing everything in our power to mitigate the damage to our country’s financial system and the middle class.
These were defective credit intruments and should have NEVER been offered to borrowers and should in theory be recalled due to their predatory nature.
Moe,
As an intro, I’m a middle class capitalist who studied business/economics, but chose a career in the military. I believe you are making a mistake in taking this Program at face value. For those borrowers who fit the Category 2 Loan Modification grouping, accepting the freeze may not be in their best interests.
In the former ‘hot markets’ a rental payment would be way below the mortgage payment. On top of that, the borrower will continue to be upside down for decades, never building equity. In other words, many of the targets of the Program will pay a high price to live in house without saving anything for themselves.
So why is there this Program? Because it helps the lenders. If a property has dropped by 20% value and it is foreclosed, the lenders take the 20% loss immediately. If borrowers can be suckered into continuing to make payments, the lenders can delay taking losses and mitigate them somewhat with 5 more years of payments.
Net effect is that this program is to mitigate losses for the lenders on the backs of the borrowers, who are expected to continue making inflated payments on a deflated home.
My solution. Create a program that allows borrowers to walk away from their properties with minimal impact ie. nothing on credit report, no income tax implication for forgiven debt. These individuals can rent and save and prepare themselves to buy once the housing market has come in line. They’ll be able to do it with down payments and good credit scores this time.
By the way, I am a homeowner who does not want to see the value of my property fall, but I detest even more the idea of people struggling to survive while transferring their hard earned dollars to the lenders who couldn’t be bothered to do their diligence.
“By the way, I am a homeowner who does not want to see the value of my property fall, but I detest even more the idea of people struggling to survive while transferring their hard earned dollars to the lenders who couldn’t be bothered to do their diligence.”
Al, Bless you for thinking more than just of yourself. This made me feel so good to read!!!!
Your ideas make a lot of sense.
Hi,
I’m new! How are you?
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the tools were not defective the people who used or sold them were the defect.
All these 2/28, 3/37 and 5/25 “subprime” programs were developed to help people for a finite period of time to allow them to improve their credit score or financial circumstances so that they could refinance into some type of permanent a-paper convential program. The programs themselves are not the problem the fact you had crooks who sold these to the wrong person or some error on the credit report that forced a person into a unconventional program.
Some focus should be placed on one important tool, FICO Scores -the fact that FICO scores were used as the gospel and this single fact alone created a blind eye to rational underwriting. If you happen to have an error on your credit report resulting in a intense drop in the score and you were required to close in a short period of time you then found yourself with a subprime option or some other less desirable program.
I know many in the business have had arguements with UW ’s about a credit score not being correct and told “sorry that is what the investor and guidline requires”. FICO score reports have a high percentage of incorrect information that suppress credit scores and this contributed to being “qualified” under the wrong program.
it always seemed out of wack that a person with a discharged bk 3 years ago with 2-3 secured credit cards would have a much higher score that someone who has similar debt, always pays on time with 0 latepayments and not aware it is better to spread their debt across 2-3 cards as opposed to having it all on 1 card with a low interest rate.
the FICO scoring model does not take into account the interest rate, income and places much more weight on the payment history over the past 24 months.
There are so many dynamics involved in this mess but you should also focus on the foundation of the problem- the defective FICO scoring model that created a false credit worthy standard that almost all the lending guidelines were based on.
is it posible to wave prepayment penalties thru loan modification or any other metod?
The F.D.I.C. has encouraged loan modifications, restructuring, and generally working with home owners in default to slow foreclosures. As a Realtor, I represent many home builders who are being foreclosed on with no attempt to work out anything. Many who are current with no late payments are not allowed any further draws and have been forced to stop construction making it impossible to sale the property. What is the position of the F.D.I.C. on loan modifications for builders ? Are there any position papers explaining your position on preventing new construction foreclosure ?