There are some secrets and straightforward tips buyers should be on familiar terms with before shopping for a house mortgage for Custer SD real estate. The primary, and most vital of these, is to carry out your research. House loans vary significantly …

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.

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.

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.

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.

“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.