These Loans Were Destined to Fail

By Poppy (36 year mortgage industry veteran & senior underwriter)

This is a challenging and open statement to those of you in the Servicing game, Modification, Short Sale, Deed in Lieu, Collections, better known as the Work Out phase of our industry. 

This is where I started in this industry in 1972, at a little tiny, itsy bitsy Mutual Savings Bank, fresh in the job market.  I started in collections before there was a Fair Credit Trade Act, when we could really get down and dirty with the miscreant borrower’s that did not make their mortgage payments.  We could berate them, belittle them, threaten them, lie to them, you name it, we could legally do it. 

There were no laws to prevent us from doing it. 

We could get down right ugly with the borrower and force payment any which way we saw fit.  Barring overstepping the statutory foreclosure laws of the state, we could foreclose in a heartbeat.  In other words we could be Simon LaGree at any given time and have no repercussions to our actions.  No, we were not commissioned, we were hourly or salaried, we were employees of the Bank, set on a mission of getting the Bank’s money.

I then went on to a much larger and more powerful Savings and Loan Institution and sat on the servicing, collections, preparatory foreclosure and loan platforms.  Again in the 70’s prior to a lot of the Laws that are now in place to “protect” the consumer. 

NOW, did we do what you would have think predicated on the fact that we were not “legally estopped” by government regulations from bad behavior in the collection and pre-foreclosure process.  Did we berate, belittle, lie, blow off, threaten, the borrower – NO WE DID NOT.

Now why do you think we did not?  We the institution were out money, translation earnings, not a good thing in the eyes of the owner/share holders.  We the institution were owed money for the funds that we made available to the borrower for their homes, they the borrower’s had to pay it to us or forfeit the property.  We the institution were going to be audited by Feds and with non-preforming loans on the books and get our little corporate banking hands slapped by the Dark Suited Ones.  So what the HELL do you think we did?

WE DID PROACTIVE WORK OUT. 

We started ahead of the curve, before the borrower was in such awful shape that they were financially terminally ill and taking the house in foreclosure was the only recourse available to us.  We determined through courteous, polite, and proactive measures what the problem was, how extensive was it, what were the extenuating factors, what were the mitigating factors, was the problem causing the delinquency open ended or close ended, was the borrower able to crawl out from under, what were our options as the lender and as allowed under the terms of the Note and Mortgage (we did not have Deeds of Trust in the dark ages in that state).  We determined what could be done to protect the interests of the Lender and the Borrower. 

We rarely took back a property, we worked it out through proven and tried industry methodologies and accepted practices, modification, rewrite, forbearance, repayment plans, etc….  We had mutual interests.  Get it, MUTUAL interests.  This is a symbiotic relationship and has been from the beginning of time when the first funds were lent out to some borrower that agreed to pay them back; you lend with calculated risk, they pay back with interest, you make money off of money, simple formula.

Just having collateral does not mean that you step in and automatically look to the collateral to make you whole, that is not the primary premise of calculated risk, it is actually the last resort.  We were and are not in the business to own Real Estate.  Dumb, dumb, dumb……really dumb.  Can I say it again really Dumb.

The ink in your Institutional pens is drying up faster than you can write your down your losses in this debacle, in just the initial phases you are taking massive losses from non-payment and interest accrued real time, costs of collections, costs of preparatory foreclosure, loss of anticipated income/interest,  loss of stock value, loss of property valuation/collaterial valuation, repurchase of loans from investors you sold to, costs of ramping up collections and loss mit platforms, loss of income through non-recoverable legal fees, loss of pre-foreclosure appraisal and other foreclosure services not recoverable, costs of huge current legal proceedings and yes…..cost of REO (ain’t cheap you know) and it is depreciating FAST. 

 You are bleeding ink and the almighty dollar, not to mention the loss of faith by institutional investors world wide, loss of confidence, loss of future confidence and the legal proceedings yet to arrive at your door steps.  Oh, let me mention, we are just getting started in this crisis, there is so much more yet to rain down.

The glory days are over boys and girls, you made up these unholy toxic guaranteed to fail products, unleashed them on the consuming public, reassuring yourselves that as long as the real estate collateralizing these guaranteed to fail products kept appreciating, you would be covered.  As to what the hell you were all thinking as regards to the real estate market continuing to appreciate, which has proven historically to be a veritable roller coaster ride, and that it would continue to cover your proverbial rear ends, that would be anyone’s guess.  Now is the time to pay the piper, that ride ended as all historical models would have predicted. 

The products you designed were destined to fail, even without the loss of appreciation in the market, not a single one was predicated or founded on prudent lending precepts. 

The acceptance of, actually almost mandatory mis-rep (fraud) in the files in stated income, stated assets, no doc, no ratio, inflated appraisals, etc….more than fueled this final result – absolute, utter and total chaos on Wall Street and Major Lending Institutions’ bottom lines. 

Now you have to visit that chaos on the consumer as if they are the egregious party?  No, you are the egregious parties to this, they just came to your door when you made it available, and you handed it out replete with the predestine failure, prerequisite fraud and built in land mines (2/28, 3/27, Option ARMS, 80/20 Combos, I/O) like candy favors at a child’s birthday party. 

It is well past the time to admit, you more than goofed, you really screwed up…….get your ducks in a row and start becoming PROACTIVE, NOW.  You really have nothing to lose, and everything to gain.   Mostly your financial lives depend on it just as the borrower’s financial lives depend on it.  MUTUAL INTEREST.

Get PROACTIVE NOW,  start the modification process before the borrower is in so damn deep they may never crawl out, get the Investors on board with this novel idea, their financial lives depend on it.  MUTUAL INTEREST.   These loans were built to fail, admit it, move on to the solution phase. 

MODIFY these nasty things ahead of the impending collection activity, use the old fashion tried and true methodology, underwrite the Modification to proven prudent decisioning before the borrower does not have a dime to buy groceries and you have a stable of Real Estate that is going to take you better than 8 years to sell off, with all of its incumbent costs as REO (more losses). 

Where you can not MODIFY, REWRITE.  Remember the Savings and Loan Debacle – if you are not heeding this post, so go you, only this one is bigger, uglier and far more economically devastating to our communities and Country’s financial health.  The implications of this financial maelstrom reach into every community in this country, just about every street in this country and beyond our national boundaries. 

GET PROACTIVE NOW.

Tagged as: Home Loan News, loan modification help, loan workout, mortgage modification, Stop Foreclosure