If Wretched wants to focus on greedy profiteering, how about Countrywide's apparent outsourcing of its operations to two drunk monkeys and a Roomba?
That party didn't last, unfortunately, but while it was in full swing it certainly saved Countrywide enough coin for a lot of Tangelo's tanning sessions.
First, yes what we have here is people attempting to tread water 6 inches below the surface. Countrywide had a duty to to distingush between catching up and and fallen behind and not catching up. That said;
"...in this case Id be inclined to give Countrywide the benefit of the doubt."
There's at least one major accounting firm no longer in business that tried excuse that vis Enron. Heck, 99% of Enron's bookkeeping practices were perfectly acceptable.
Countrywide is on double secret probation. They don't deserve the benefit of the doubt even in cases where it seems they were just doing their jobs.
It must be journalistic style to recount the anecdote of a specific borrower with a touching personal story (mostly a medical issue) for you, the reader, to overlook the fact that the sweeping generalization applies to those who bought more house than they could afford under lax credit conditions.
I've given numerous background interviews to reporters on complex trade issues and without exception they end up horribly mangling what I told them. I've come to the point that I wonder if it's really the writer or their editors who cause the carnage.
And what favor do these reporters think they are doing for the poor Atchleys? I mean, I'm not happy about writing about them by name on a blog and getting into their mortgage payment habits. They deserve, like everyone else who has paid the price, a decent obscurity.
Yet they talked to a reporter who wrote them up as a sob story, by name, making unfair allegations against a company and insinuating that this problem is sufficiently widespread that Congress should get on it. That rather requires those of us who care about the actual facts to drag the Atchleys back through the whole thing. Some favor those reporters have done for them.
I wonder why more journalists aren't politicians. Both feel the need to overly simplify (i.e., dumb down) stories for mass consumption, and usually to support some not-so-hidden agenda. Terribly misleading and condescending.
I've given numerous background interviews to reporters on complex trade issues and without exception they end up horribly mangling what I told them.
All I can say is that both reporters in the current case had access to the written Trustee's Complaint that I did, and that--unless their Internet privileges have been revoked for bad behavior--they can look shit up on the county recorder's website, too.
I did not rely on any oral statements in my post. I have not, nor do I intend to, interview the Atchleys or anyone else. I just, well, read.
If the Atchleys were willing to go the record and air their grievances then really they can have no expectation of privacy on the whole matter. Most likely they have told the self serving version to friends and family so many times that they believe they really were wronged.
The reporter is helping air their grievances to the world. There's never any guarantee that the world isn't going to hit back.
The reporter is helping air their grievances to the world. There's never any guarantee that the world isn't going to hit back.
Right. And I only said I wasn't happy about this; I obviously was willing to do it.
My point is that any reporter who was not born yesterday has to know that people will air grievances if you let them. Both reporters refer to this Trustee's Complaint. They had it before they wrote. It should have made them slow down a bit.
That's the sense in which they didn't do these folks any favors.
And it looks, per Gretchen, that Mrs. Atchley is going to testify in front of Congress.
According to Freddie Mac, the average 30 year mortgage in March of 2004 ranged from a high of 5.59% to a low of 5.38%. So let's say they were an extreme loan risk, and instead of a standard 5.5% rate than many of us would have gotten, they got a 30 year fixed rate 1.5% higher. Their monthly payment on a $161,900 loan at 7% would have been $1,077.12, not including taxes and insurance.
One would have to surmise that the couple is pretty financially unsophiscated given their mortgage decisions. It would seem to me that it was ignorance on the part of the family, and downright greed on the part of the mortgage company.
Sorry, but in my mind, this couple was preyed upon by unscrupulous mortgage lenders.
Re: "they can look shit up on the county recorder's "
I think this is the crux of the subprime "problem". i.e, people didn't know shit and they had no clue what kind of shit they were getting into, and the people that sold them a line of shit, didn't give a shit!
Sorry, but in my mind, this couple was preyed upon by unscrupulous mortgage lenders.
You notice, however, that they did not make that claim.
I don't know why you would assume that they would get a rate of no more than 150 bps over the GSE fixed rate. Many subprime borrowers pay rates 200-300 bps or more over "prime."
But they would surely have been money ahead to keep that 7.75% loan rather than refinancing one year later into a 10.10% loan. I agree that you have borrowers without great financial skills here. But they don't say they were duped into that refi; if we take the AJ-C seriously, they wanted that cash to make improvements to the house and did so willingly.
If they had at least one late payment on the first 7.75% loan, which isn't exactly hard to imagine, that would account for part of why the rate on the next loan was so high (that and the fact that it was a high-LTV cash out).
Just FYI Tanta... the Atchleys bought the house for $179,900 as indciated by the transfer tax amount on the face of the real estate deed from Woodall Construction in March 2004.
Thanks, Cherokee County RE Attorney. I was too lazy to try to look that up. That would make the original purchase loan 90% LTV.
You can see why these borrowers tried to hang on so long: they felt they had "skin in the game." God knows what appraised value came back in March of 2005.
But the fact that they were delinquent by payment 4 tells me it was very simply a capacity problem.
My math says that, given the 179.9k property price, the Atchley's put 10% of the purchase price down (including closing costs which appeared to be roughly 4k).
They ended up with a 90% LTV loan. Previous threads have mentioned a necessary 3-5% down to avoid high-risk. The question then becomes what is the DTI.
This story reminds me of another story the AJC ran. This woman came home from VACATION and found a foreclosure notice in her mail. We weren't' that far behind and the she was incredulous that she didn't receive 50 notices.
The AJC can really pick some horrible examples of the points they are trying to make.
I'd also be curious to get an opinion from one of our BK attorneys about this one. It does seem they had little to no unsecured debt. If you assume the only cars they had they used to get to work, and they weren't giving those up, what's the real point of a BK for these folks? I can't see that it accomplished anything except the FC stay, which is why I suspect the Atchleys focus on those stay motions as "the problem."
Surely, TCA, you never fell for that nonsense about Alyosha being the hero, did you?
I was merely tweaking ipodius. In my own view, there isn't any difference between a narrative in which everyone is the bad guy and one in which everyone is the good guy.
there isn't any difference between a narrative in which everyone is the bad guy and one in which everyone is the good guy.
Oh lord, an existentialist post if I ever saw one! That could be worse than the gold bugs and the fiat currency ravers!
I believe the best quote about russian novels came from my undergrad lit professor who said "Reading classic Russian novels is a bit like chewing ones way though a bowling ball". Surely a quote for the ages.
Surely, TCA, you never fell for that nonsense about Alyosha being the hero, did you?
Alyosha, Ivan, and Dmitri were all admirable in some way. You could argue Smerdyakov was partially a victim of circumstance and a hideous upbringing. Still, framing your brother for murder is not heroic.
Fyodor, OTOH, was a louse through and through.
I was merely tweaking ipodius. In my own view, there isn't any difference between a narrative in which everyone is the bad guy and one in which everyone is the good guy.
The US financial world has gotten so incredibly effed up that there aren't good and bad guys anymore. Only a few hundred million people stumbling around blindfolded in a carnival funhouse.
I guess you could posit that anyone who allows him or herself to get entangled in it is a priori a bad guy, in the same way that anyone standing around a sidewalk game of three card monte is a bad guy.
But when it comes to staightening this mess up and punishing the "bad guys," we may as well forget it, because there's just too many of them with so many varying degrees of guilt as to make it a judicially-hopeless endeavor.
But why did it come to this? My operative theory remains the same: when the currency has no basis of substance (e.g. precious metals), reality is exiled from dealings not only in the financial world itself, but also from all decision-making. Gradually, common sense dissipates and the abstract standards by which measures are made utterly dissolve.
No amount of finger-pointing, no army of lawyers, no initiatives by Congress, and no sleight-of-hand by the Fed is going to address the root cause of this debacle. After it has completely ravaged our society, we will restore order again only by anchoring our monetary base in something real--probably (at least initially) in gold and silver.
Too bad these folks didn't make it to later in 2007. They SEEM to be salvagable canditates for some HOPE NOW action. Waive some fees, put em in a 30 year fixed loan at a lower than currently prime rate and they'd probably do OK. Fair? OTOH Countrywide got their money when they sold so would they have been treated that way?
Question on statistics: What percent of the defaults were caused by people having medical problems that they had to borrow to pay for and then could not repay?
"The US financial world has gotten so incredibly effed up that there aren't good and bad guys anymore."
This presupposes that there ever were "good guys" and "bad guys". Me? I'm pretty sure we all evolved from monkeys, so there are a lot of "self-interested guys", and that's all there's ever been. Not that there's anything wrong with that.
Too bad these folks didn't make it to later in 2007.
The problem here is that they experienced their serious (90-day) delinquency in October of 2005. I have no idea when the market topped in Cherokee County, GA, but it's quite likely that was about it. Had they sold then, it's hard to believe that either they or Countrywide would have taken a loss.
No servicer has ever had a "loss mitigation" model that says it's "less loss" to modify a loan to a below-market interest rate than to be repaid at 100% of principal today, not when the borrower's past record indicates that future re-default is more than usually likely. I strongly suspect that having lost half the household income for "a few weeks" did not pass muster with the servicer as a "mitigating situation." I can see that getting you one month down; maybe two. But 90 days? That doesn't exactly add up to me.
It is exactly the borrowers who did "wait" until late 2007 who got trapped, because they could no longer sell.
I couldn't opine about whether they were decent workout candidates without knowing their current income, total debts, and some sense of their past payment history (before the default on the 2005 loan). I'd want to know what the history was on the 2004 loan. Something doesn't add up going from 7.75% to 10.10% in one year. Of course you can't rule out predation, except that I'm surprised these borrowers wouldn't have raised that issue themselves.
I know it's beating a dead horse, but hell, I don't particularly like horses anyway.
This story is so badly written that two of the real villains are getting away scott-free.
First, Countrywide's farcical operations model escapes with scarcely a whiff of criticism. This is what happens when you decide the plot really needs an evil genius brooding over an elaborate conspiracy hatched in his mountain fastness. As opposed to a cheap bastard too greedy to pay for anybody competent enough to use, say, a telephone or a calendar.
Second, no one mentions prices. Is the price they paid a logical next step up the ladder for a resident of a single-wide? I doubt it. One suspects--but can't examine in this story--that the subprime programs designed to "help" such buyers merely served to inflate prices beyond their financial reach.
But hey. Whose interests are served by efficient but competent operations, or realistic real estate prices? No one. Back to work.
Can't help but state that for virtually anybody with any financial common sense, it would not be unreasonable to expect that the 3/27 loan with a start rate of 10.10% would fail.
So who benefits? Like you said, the originator that sold them that piece of crap, and the builder.
Lots of bad money advice being dispensed by the loan agents, and a complete lack of due diligence by the money lenders.
I'm just surmising that isnce they seemed to be coming up with regular chunks of serious cash to try and catch up it seems they were within a hairs breath of affordability. OTOH if they were "worked out" then failed again due to those income facts we don't know about the loss only gets worse over time. No easy answers eh?
What percent of the defaults were caused by people having medical problems that they had to borrow to pay for and then could not repay?
I don't know anyone who keeps "statistics" on that specific group of people.
Certainly a significant number of personal bankruptcies are due to medical bills. But those are generally--as far as I know--unpaid ones.
It is, frankly, hard to know what people use unsecured loan proceeds for. Some people surely do use HELOCs or credit cards to pay medical bills with, but those show up in the "statistics" as HELOCs and credit cards, not unpaid medical collections. For a lot of people, the debts rack up not because of the medical expenses (which are covered under insurance), but because of the lack of paid leave or the inability to continue working. That's a "medical issue," but it's the kind of thing servicers often class under "interrupted income" rather than "too much debt."
In this particular case, by the way, the medical problem does not appear to have been one of our borrowers'. Her sister died suddenly, and apparently she just couldn't function at work for several weeks. I can relate; I suspect most of us would be a wreck in that situation. But I didn't see anything suggesting that the Atchleys were responsible for the sister's medical bills. It sounds as if they simply are so tightly budgeted, paycheck to paycheck, that a few weeks without one paycheck destroyed the household cash flow.
I'm just surmising that isnce they seemed to be coming up with regular chunks of serious cash to try and catch up it seems they were within a hairs breath of affordability.
Well, I did include all the facts I know. Anything else is just speculating.
That said, the pattern with these borrowers strikes me as a very classic kind of subprime behavior: they pay, but only at the last minute and only after you have literally sent the FC notice (or filed the motion to lift stay). There is a group of poor money managers who pay like that (as long as they can). They skip the utilities until the disconnection notice arrives, then bring it current, then a few months later it goes DQ again. The only thing that seems to work is the immediate threat of disconnection or FC or repo or whatever. As I said, it's a game of chicken with the servicer. As long as they do keep brining it current, nobody really wants to foreclose. But you can't stop threatening them with foreclosure, or it won't keep coming current.
Of course it's possible that either or both borrowers ended up at the point of having only sporadic income--temp jobs, perhaps, or highly variable hours. That could explain the erratic payment schedule.
It would not, though, make a servicer highly motivated to give them a "prime" interest rate on a 30-year fixed, if the "average" of this sporadic income wasn't enough to cover one payment per month.
I'm a reporter. Aggrieved consumers come to me on a fairly frequent basis, wanting me to tell their stories. Most of the time, when I look into the details, I see the kind of mind-numbing complexity that Tanta is describing here. Those kinds of things can't generally be turned into "newspaper stories" without ignoring the inconvenient facts that don't fit into the mold--if your mold is "predator and victim" or something simplistic like that.
To me, the Atchley case would be a good one to use to illustrate the complexity of lending, borrowing, bankruptcy--a case that makes one of Tanta's favorite points: mortgage loans are complex, and trying to come up with some blanket approach to fix all the problem loans at once is nonsensical.
People like this will argue that they "just had to" take unplanned, unpaid leave when they don't "have" that option. I'm sorry the woman's sister passed, but seriously, people go back to work all the times after family tragedy's because they HAVE TO.
Personally, I long for the days when people like the Atchley's could graduate from high school, get a high paying factory job and not scrape by their entire lives. But those rules changed 20 years ago or more and I'll admit to a growing anger at J6P's refusal to accept this (and vote their own interests.)
I know I am probably going to be throughly trashed for these comments; however, here they are. I can tell you with almost 100% certainty that the local courts here would simply tell CountryWide to "suck it up", you made a loan to these guys and you will live with it-- and, by the way, the interest rate is 5.5%, so you get a hugh fine for that. As long as they are trying to pay--they stay!!
This all comes from the requirement that banks and lenders must add to community welfare as the price of doing business. The appraiser would be be licensed by the government and would set the price as well as the tax rate and price. If he lies, he goes to jail where he can provide his own food and cloths.
This article seems to illustrate that people in general do not know the price of housing, what is a good and a bad loan and tend to take the advise of salesment and loan agents. This whole idea is called 'social responsibility' and we demand compliance.
Is this a 'bleeding heart liberal' talking? Nope- in every way, NO! We just have first hand knowledge of places where the 'little guy' gets screwed, and when he gets screwed enough, he votes for the politicial who tells him 'just take the rich man's house'-- and he does.
This is a problem you do not have; however, it seems to me that you may be getting close to seeing it 'up close'. I sincerely hope not. You are right, the Atchleys are sub-prime. Yet they tried very hard and could have probably made it with some help and financial institutions who had thier interests at heart as well as trying to make their investors a reasonable return.
Oh well, so much for an opinion from us 3rd world people.
At the risk of repeating something that I am sure has and will be said umpteen times on this thread, on the subject of good and bad in this saga:
Before I enter into any contract, I ask the fundamental questions of:
Do I understand every word of the contract into which I am about to enter, however nuanced?
Can I meet my end of the deal for the length of the contract? Come hell or high water? Even if the events of my life over the term of the contract develop along the worst case scenario for me?
In my opinion, the question of good guys and bad guys can be assessed very neatly along what one's truthful answers to the above questions are.
That said, nobody is perfect and bad things happen to good people. I think there is already enough slack in the system for those situations.
I don't really give a sh*t if the lawyers or the brokers or Ben Bernanke misled anybody or if Santa Claus doesn't really exist after all.
My integrity is more valuable to me than theirs is to them. If that makes me a schmuck, fine. It it makes me a better person, fine. I don't care. My values are non negotiable and they are not subject to trends or fashions.
My first rule of thumb on LOE's was if it was really that tragic, you wouldn't be talking about it.
You wouldn't exploit the tragedy to get a loan. In this instance, you wouldn't exploit the tragedy to get your name in the paper so that Gretchen could go on about Great Satan Countrywide.
Sisters die. Fathers and grandmothers die. Children die. You make the choice to not let the grieving process consume your time and income. You make the choice to greive quickly, quietly and with the dignity that shows your three boys that you won't need to borrower their lawnmower pay for gas money.
You decide that you will show them the strength it takes to be an adult and do what it takes to keep the roof over their heads. You decide not to blames the passing of a beloved sister on your inability to budget.
Tanta, the high APR on both loans you say implies they had a bad credit history.
Even so, they purchased the place with 12% down, and utility linemen jobs are stable and pay well.
The 7.75% rate on the first mortgage seems pretty excessive then. It sounds to me like they were taken advantage of. Maybe with 4 kids and 2 adults living in a crowded trailer they put too much trust into the smooth talking indymac broker rather than spend a lot of time looking for better rates.
"I have no idea why the Atchleys increased their monthly payment by over $400 in order to borrow less than $20,000 in new money."
To put it bluntly, a big segment of our population is financially illiterate. They do not understand basic concepts like compound interest and market interest rates. For a long time we had usury laws to protect them, but the Republicans on the US Supreme gutted state usury laws in the 80's and 90's.
Now we have 800% APR payday loans and predatory cash-out refinancing offers filling our public airwaves and our mailboxes and homeownership dropping for the first time in more than half a century.
Foreclosure attys do not earn humongous fees. I have never complained about their fees once while contesting foreclosures. In fact, I wish they'd charge more, and do a better job.
Likewise, I have run into a couple of cases (with Washington Mutual, where the customer's account was so screwed up it took me a whole year to straighten it out.
Much as I love to bad mouth lenders these are RARE events.
Who took their money to file a Chapter 13 and when?
These people had nothing to lose--their credit was stinkin' up the single-wide, based on the aggressively priced 90% LTV they were offered; they had no liquid assets; they had no equity in their new home; one suspects that they were upside-down in two cars as well.
If some bankruptcy specialist took $1300 from them as her/his last act before turning out the lights on a formerly profitable Chapters 7 & 13 practice that headed south after the 2005 'reform' passed, I nominate her/him as the villain!
What was the prize again? I get to skim another 6000 word parsing that shows more insight into the foreclosure of the Object Lesson than was displayed by the Object Lesson in the story?
Tell me again why banks bothered to gorge themselves on subprime... Oh it was the predatory fees. 10% interest! How nice. I'm sure that more than offsets the costs of foreclosure. If it doesn't - tough.
Here's what I want to know: Who do I have to kiss to get a Deeply Moving Story about the motive that drives Countrywide to add expense fees to this dog of an account? It's not as if they or the Trustee or the delinquent borrowers think that this money is about to appear.
Are they tacking on the $1900 or $2300 or whatever because they need the additional paper loss? Does it legitimize the risk they took (and securitized and sold to my mom's pension fund), in their febrile imaginations, in lending to this type of borrower?
It's not just about adding insult to the injury of offering a 3/27 at 10.something to a family that is three weeks of missed wages from foreclosure; it's also about extending the pretense that anyone thought the Atcheleys would pay on this loan after their first speed bump.
Can someone put all this on a bumper sticker for Barney Frank's aides to read? I'm thinking something along the lines of, Subprime loans cost more because the bank risks more; this is an example of why that is.
10% interest! How nice. I'm sure that more than offsets the costs of foreclosure. If it doesn't - tough.
Look. Their models told them that the increased frequency and severity of loss on the 10% loans would result in a net yield about the same as prime interest rates.
Their models were of course wrong, but that, well, is my point. Not "sympathy" for the lenders, just shock that Gretchen can claim they're making money hand over fist when it has, like, been in the papers that their great model failure is bankrupting them.
Look, if these subprime servicers were makin' money on this stuff, they'd be telling us. You can count on that. They'd all love to have something to tell the analysts except "we're bleeding money left and right."
Morgenson's piece is 565 words. Her editor probably gives her up to 600 words and then forces further edits if the page layout requires it.
Tanta's piece is 4013 words.
CFC behaved badly. CFC and their lawyers have adequate resources to defend themselves if they feel they have been misrepresented by the NYTimes. They don't really need Tanta's help.
Who do I have to kiss to get a Deeply Moving Story about the motive that drives Countrywide to add expense fees to this dog of an account? It's not as if they or the Trustee or the delinquent borrowers think that this money is about to appear.
Uh, it did appear. The borrowers paid it.
I'm afraid that's why the posts get so long, you know. Lots of details. But the borrowers appear to have netted $197,000 from the home sale after paying the RE commission, they added their own $2K to that, and paid in full the entire payoff amount. Including all fees.
CFC and their lawyers have adequate resources to defend themselves if they feel they have been misrepresented by the NYTimes. They don't really need Tanta's help.
I'm not trying to help CFC.
I am trying to help the rest of us whose tax dollars are going to be used to legislate against "unnecessary foreclosures."
The one example that the Times could come up with isn't an example at all. You don't think that's newsworthy?
And yes, I am entirely disgusted with this "well, it's CFC, they're guilty of something anyway" mentality. That's the logic of a police state.
I also noted the single wide reference. There are many manufactured homes in the South but almost all are double wides that I see. Hell I thought they quit making single wides which is about the bottom of the housing barrel. Below single wides is a plastic drop cloth in the state forest. From single wide to $180K house with homeowner fees(unless a large jump in income) seems a stretch.
Another point. Given the ages of the four children, I wonder what the plans were for their education. Refinance probably if the need was ever considered.
And yes, I am entirely disgusted with this "well, it's CFC, they're guilty of something anyway" mentality. That's the logic of a police state.
Not a police state - just good ol' fashioned populism. Sometimes the deck gets so stacked against folks. When they try to make progress the sharks come out to feed. This subprime disaster seems an awful lot like a feeding frenzy. Dangle the American dream in front of illiterate (Ok unsophistacated) subprime slime then clean up in fees. This time their greed got the better of them. We all know the deadbeats are getting their punishment.
And yes, I am entirely disgusted with this "well, it's CFC, they're guilty of something anyway" mentality. That's the logic of a police state.
Well you better get used to it because that's the direction were heading in.
investmentBanker: Well said. Best comment in thread, imo. We 'mericans just can't come to terms with the notion that political risk is something that applies to us as well. All in the fullness of time . . .
Tanta wrote: "To sum up, then: there is evidence here of gross incompetence on Countrywides or its attorneys part in failing to amend its Proof of Claim (probably on several instances). Its behavior in not refunding improper payments from the court until the debtors filed motion is indefensible. They should collectively get their butts kicked for that, and it appears that they will."
and then she wrote:
"And yes, I am entirely disgusted with this "well, it's CFC, they're guilty of something anyway" mentality. That's the logic of a police state."
Even if CFC's actions in this case were an isolated incident Tanta's comments would be, um, ambiguous at best.
Do you really think that CFC and their industry had and has insufficient influence in Congress? Do you really think that what eventually comes out of Schumer's committee won't be diluted to the point of uselessness once the financial industry's toady's on the Hill are finished with it?
This taxpayer prefers his dollars to err for a change on the side of defending the "little people".
Clear and concise, Tanta. Read like a Supreme Court decision.
2963 words; a true Tantayac would never include the cut-and-paste. As I said, brief compared to the 4600 word piece I so much enjoyed a couple of weeks ago.
Tanta: There is a group of poor money managers who pay like that (as long as they can). They skip the utilities until the disconnection notice arrives, then bring it current, then a few months later it goes DQ again. The only thing that seems to work is the immediate threat of disconnection or FC or repo or whatever. As I said, it's a game of chicken with the servicer. As long as they do keep brining it current, nobody really wants to foreclose. But you can't stop threatening them with foreclosure, or it won't keep coming current.
It's called "The Crisis Management Lifestyle." My brother has lived that way for decades. Puts oil in the car when the light goes on. Smokes the last cigarette on the way to the store for more, even if it's in the middle of the night. Never pays bills until shut-off is imminent.
Drives me totally effing nuts. I couldn't sleep at night living like that.
Yes indeed, Paul, good ol' fashioned populism. Speaking of which, did you see the good news on foreclosures today: down 24% YoY in the Keystone state. How did they do it? A little good ol' fashioned political intervention. Better get used to it people. Home foreclosure rate continues ugly climb - Real estate- msnbc.com
Do you really think that CFC and their industry had and has insufficient influence in Congress? Do you really think that what eventually comes out of Schumer's committee won't be diluted to the point of uselessness once the financial industry's toady's on the Hill are finished with it?
Of course it will be useless. No one will stop to ask what the real problem is. They only want to talk about the "problems" that play well with the voters at home.
This one's a great example. We'll get some federal law that says servicers can't move to lift stay until a 60-day DQ has been verified. BFD. 99.9% of the time they do that anyway, and in the current case it looks like they tried to in what seems like good faith to me. But what will it "hurt" to make an unnecessary law about it? It won't really impact the financial industry, it won't magically provide income for people like the Atchleys, and it'll make us crackers at home happy to see ol' CFC really get it. Right?
Your post raises a boatload of issues. I can only speak of my own experiences.
There is a problem in the mortgage servicing industry. To simply state it: their accounting is a joke, and not a particularly funny one. One case that springs to mind is that of Nosek v. Ameriquest, which is an Adversary Proceeding in Massachusetts. In that case, Ameriquest effectively told the Bankruptcy Court that it could not change its accounting practices if one of its borrowers filed bankruptcy. They essentially said we cant change how we do things just because one of our customers goes into bankruptcy we just do not work that way.
By not changing the practices, late fees would be assessed and interest would accrue in direct violation of a confirmed chapter 13 plan and the US Bankruptcy Code. Youll find the case at 363 B.R. 643 (Bankr.D.Mass 2007), and just last Friday, the Bankruptcy Court assessed sanctions against Ameriquest and its law firms for basically making material misrepresentations to the court. The AP docket no. is 07-4109.
In my experience, I have been increasingly frustrated that lenders are filing Motions for Relief from Stay for nonpayment of post-petition mortgage payments, only to learn that their allegations are not correct. Its not limited to Countrywide. It is very frustrating to instill in debtors their chapter 13 obligations be confident they will adhere to those obligations, only to see a Motion for Relief from Stay filed because one office of a servicer is not speaking to another.
Ive seen payments not applied correctly or payments not applied at all. Ive had to call up servicers/lenders counsel and say tell me exactly WHO my client is to because it doesnt get properly credited. One of my debtors recently took a photograph of his payment, the addressed stamped envelope, and a copy of that days paper just in case the mortgage company attempted to claim he did not make the payment. He offered to video tape himself walking to the mailbox and putting it in, but then I feared hed have to follow the mail truck to ensure it got to the correct postal facility.
Sometimes the lenders are right in their motions, sometimes they are partially right, and sometimes they are so wrong that it makes me wonder how these folks can pull their pants up in the morning without wreaking havoc in the civilized world.
While I appreciate the amount of research you did for the article, Im not sure we have everything we need to fully and fairly assess the situation. I am not saying youre wrong but I have a difficult time swallowing that the Office of the US Trustee is spending so much time and resources chasing Countrywide over something that is ultimately trivial.
My point is, for the bankruptcy process to work, we must be able to rely on what lenders tell us in their motions much like we must be able to rely on the fact that a confirmed chapter 13 plan will be adhered to by creditors, debtors and trustees. A confirmed chapter 13 plan creates obligations and memorializes expectations. We must be able to rely on what lenders represent in their proofs of claim. When we get a pay-off figure, it should be supported by something, and just not be one big number that someone thinks that no one will have the time or the inclination to dissect. When it gets to that point, those pay-off figures/big numbers become fertile ground for burying fees and costs that should not even be there to begin with.
Finally, on the whole sub-prime mess and whats a classic sub-prime borrower, there are some folks who fit into that. And youre spot-on: it is a matter of fact, and not an insult. However, the Atchleys fit the profile of what I view as a typical bankruptcy filer. Its not uncommon for one of three big life events to lead someone to the steps of the bankruptcy court: (1) divorce or death of an income earner; (2) illness in the family; or (3) lost job or loss of income. While that should not be read to mean that only those folks end up in bankruptcy, its worth noting that the Atchleys experienced two: loss of income, and illness in the family. There may have also been some level of financial illiteracy, which is more prevalent than I think many might be inclined to believe, but theres nothing in the facts presented for us to make a strong inference.
How and why they refinanced in what appears to be a lousy loan and end up with Countrywide is anyones guess. It looks like the Atchleys were doing everything they could to keep their home and retain some dignity (its not like they went into a Chapter 7 and walked away). It appears that they were living penny to penny, and paycheck to paycheck. So for them, every penny counts. And if the US Bankruptcy Code essentially says that in a confirmed Chapter 13 plan every penny counts why shouldnt the US Trustee be looking at Countrywides practices? And why shouldnt Countrywide or any other party who is not playing by the rules pay a price or not doing so?
Even after reading your magnum opus we don't know if the Aitchley's entered into the original mortgages knowledgeably and in good faith or if they were fools or victims.
As you said in your intro there is a lot of blame to go around. I place most of the blame on the "industry", on lax regulators and Congress's and Presidents who were happy to grease the wheels in exchange for campaign contributions (and more?).
So what was the real problem? The periodic infatuation societies get with the magic of leverage and the conviction that this time "it's different".
So will we go too far in the opposite direction? Probably. And it's about time.
There's one aspect not addressed here - loan servicing. Loan servicing fees have dropped dramatically over the last 10 years. I would bet that most loan servicing workers have only high school diplomas.
When a borrower files bankruptcy it is likely that the business person assigned to it at the servicing company really isn't trained to handle this type of thing and doesn't have a good grasp of how bankruptcy works. The attorneys rely on the loan servicing folks for timely information.
In the FWIW category, I have an order determining that Countrywide overstated the amount of fees it was owed after a motion for relief. The excess was about 3K out of an alleged 3.5K. They also have to pay my fees.
I think what happened is that the reporter had a story to write and just found a story to fit (after filing off the rough edges) the already decided upon script. One of those "higher truth" things - and a major reason the MSM has less credibility by the day.
There is more honest reporting in the blogosphere than any regular media outlet I could name.
Most blogs have a slant - but you know what it is upfront - no pretense of "unbias." And better investigation (with all too few - but very important - exceptions) happens often and in real time on one thread after another.
It would be a great and wonderful thing if major news outlets each had investigative divisions that conducted hard-hitting" let the chips fall where they may" investigations of the issues crucial to us all.
That is expensive, however - and the bean counters don't like it. Far easier (and cheaper) to half-ass everything and mold "facts" to fit pre-ordained molds. That's how we got into this lousy war - and how the criminally irresponsible political hack Greenspan became known as "The Maestro" as he and Bush destroyed the economic foundation of our country.
Also when you have entities like Countryside running around acting as if they are the Wise and Wonderful ones, saying "trust me" up the wazoo and doing everything they can to convince the sucker, excuse me, BORROWER that they should be "trusted" and treated as "experts" in the area, then sorry, my empathy for their problems gets down to a very tiny violin.
Basically, if you claim you're acting in a fiduciary manner, then you should better damn do so, and I think the law should come down on you like the proverbial ton of bricks if you don't.
Bill McLeod wrote: Finally, on the whole sub-prime mess and whats a classic sub-prime borrower, there are some folks who fit into that. And youre spot-on: it is a matter of fact, and not an insult. However, the Atchleys fit the profile of what I view as a typical bankruptcy filer.
Regarding the use of "however"...how different are the two categories? As what Tanta calls a "civilian", in both matters, I really don't know, but everything I'm reading here and elsewhere suggests they have a lot in common. And, if so, then I'd probably feel even more confident in thinking that BK cramdown proposals are a good idea.
BK cramdowns are a great idea. It will establish precedent and encourage many parties to work out restructures without having to go to bankruptcy court. There is legal precedent from the 1980's when farmers faced similar struggles.
After the precedent in BK court was established, loans were modified and people kept their farms. Something similar will need to be done in this current crisis.
Thanks for doing all that research. It certainly throws more light on the story even if there are still some missing pieces.
I know some people like this - crisis to crisis with the utilities and the mortgage and the daycare. It seems like a horrible way to live.
If we are going to take care of people like this (and maybe we should), I'd rather see it on the front end. I remember when banks wouldn't give you a mortgage if you plainly couldn't make the payments. I guess it was paternalistic or whatever, but it seems like a much better system to me.
Tanta, as always a fabulous job. But I am perplexed by the tone regarding the US Trustee. It seems to me that Countrywide's treatment is a pretty logical continuation of the destruction of its reputation, as well as other financial institutions such as Deutsch Bank in other bankruptcy courts. There have been multiple incidents of filing fabricated (misunderstood?) documents, or being unable to produce even the most basic documentation to support any claim whatsoever.
You've written in the past about how some of that paperwork makes some perverse sense within the mortgage community, but lawyers, judges, and laypeople have not been sympathetic to that degree of apparent incompetence.
Countrywide's treatment makes perfect sense to me in the context of how these bankruptcy judges have been treated by financial institutions' lawyers recently. Just because the Atchleys's situation merits foreclosure doesn't mean you have a happy judge or trustee. I'm not the least sympathetic to Countrywide, no matter how unfair the trustee is being, as I know how things would go for me if I pissed off a judge. Antagonizing judges is on the list of Things you just don't do. Fairness, really, has nothing to do with it.
That Countrywide's financial accounting doesn't seem to engender much understanding in BK court proceedings, amazingly, turns out to be Countrywide's problem.
I'll throw one idea into the pot. Nothing gets the government more pissed off than when you play them for a sucker over money that they control.
True Countrywide jumped the gun and stepped on their own dick multiple times and the Trustee was not amused. But what got the Trustee really mad was collecting settlement payments from the court after the home was sold and also trying to collect additional legal fees without amending the court filing.
I have a co-worker who lives as I assume the Atchley's live.
While trying to help counsel her out of debt (with a $125k+ family income), I suggested tackling the smallest debt first and paying the most she could afford towards paying that debt off while making the minimum on everything else, then once that bill was paid, add that amount to the next smallest bill + the minimum payment it required. Last, I suggested taking whatever her checking account balance was on payday and putting 1/2 into savings and repeating that every payday.
She looked at me strangely. I asked "is there anything left in your account on payday?". Her answer: "No". Next question: "are you making anything other than minimum payments on any account?". Answer: "No."
Internally I shook my head at how badly her finances have been handled. To my knowlege, she has no car payments and the family rents their two bedroom/one bath home for about $1K a month. They do pay child care fees of around $800 per month. Other than their rent and childcare costs, I guess the rest of their income goes towards servicing their consumer debt payment...or something.
I suggested she consult the consumer credit counseling service in our city as her next step. Some truths are just too hard to be heard from a co-worker. To date, she hasn't followed through.
Oh yes, she and her SO and their two kids really want to buy a home and next week they plan to buy a SUV (Expedition). Atchley's redux.
My advice may not have been the best but it got our family out of consumer debt a long time ago.
As for the Atchley's? We bought our first house in the late 80's. We were young and had OK, but not great, credit. Our initial interest rate was 10%, I had co-workers with worse credit who had interest rates as high as 18% on their mortgages, I don't recall any of us walking away from our freely agreed upon contracts with the banks (who weren't much friendlier then!)
One year into that mortgage, I had a medical issue that cut my portion of income by 50% for nine months but we never missed our mortgage payments. We ate poor.
We had an FHA loan with a 3% down payment with a mortgage debt to income ratio of around 40% (somewhere close to the highest allowed). We were prime, but only barely.
What's my point, besides pointing out that I'm an old geezer? I think people took on debt more seriously 20+ years ago, and their word and their bond and their signature on a contract meant more back then.
For the youngsters? We already had the option of ARM's and other nefarious banking schemes, I guess most of us didn't bite on them, those with iffy credit preferred to pay those 18% mortgages every month rather than not know how much the house payment was going to be when it reset.
Not to say that some of them haven't HELOC'd the house these days...but that's never been our idea of paying for extras.
@ Emma Anne | 04.29.08 - 10:44 pm |"If we are going to take care of people like this (and maybe we should)"
I really don't believe that we should and I'm a Democrat. But I really don't believe that we should. At some point we become enablers and I don't want taxpayers/savers/frugal people to bail out those who lack financial sense.
Another anecdote, hopefully shorter than my last one.
A couple I know with a good income bought a house in 2001. Nice young couple who got in before the madness hit, one child. They bought a 5/4 in a soon to be hot area, the husband chose to HELOC that house into a place that they couldn't afford (new boat, new truck to pull the boat, vacations (without the wife and kid) a side business that made no money).
Within three years they owed more than $300K more than their original purchase price and it all went to his wants.
Without a doubt she was (I have no words) to go along with those refinancings but the end result was a divorce and a loss of the house to the bank.
Should taxpayers/savers/frugal livers pay to have kept them in it?
I feel badly for her, but no, I don't want my tax dollars going towards anything that enriches people who get to keep their ill-gotten gains.
Of course, he kept all of his toys, even though California is a recourse state once you do a refi. There are too many to take to court.
Tom Wrote: Regarding the use of "however"...how different are the two categories?
I intended to distinguish the circumstances faced by the Atchleys (illness in the family, loss of income) from sub-prime borrowers who are high risk for other reasons not related to a major life-changing event. Even if they were not in a sub-prime mortgage, those life-changing events can push many people down a few financial levels. I do not keep statistics on what forces people into bankruptcy. I only know what I see on a day-to-day level.
TEBB:
I hear you on the servicing issues. I am an REO asset manager for a MF lender and while I am occasionally frustrated by our servicing folks, they do a good job for what they are paid especially since we just let a couple go (I know, I know).
They call me on a regular basis when payments are incomplete and we review the best way to apply P&I, escrows, past due amounts, etc. They can follow directions, but they also need a 'business person' to provide the documentary cover that they are applying received funds to the appropriate bucket.
I would add that the timeline as presented offers numerous opportunities to miss a payment and a filing. I typically write our default notices because I can call servicing, verify non-payment, and immediately distribute the default letter. But then, I don't have the same number of properties as someone on the SF side might and I try not to outsource my job to the attorneys.
If you remember that the mortgage check goes to some central location at the servicer for distribution, has to go to a servicing agent for receipt and recordation, and then hit the servicing system for others to be notified of receipt and application, you can miss a payment. In the meantime, as the asset manager, I'm either writing up my notice of default and calculating fees or I'm handing it off to the attorneys to take two days to fill in the blanks on their boilerplate, check the default fees, and then mail it out. There are a lot of moving parts. Needlessly complicated perhaps, but you still have plenty of people 'touching' this file.
Happened to me last week. I checked in at 4pm to see if a deadbeat borrower (repeat offender) sent his $106,000 check. He was already 15 days late so I was in no mood to cut him slack. As it turned out, it went by mail (not wire) a week earlier to the wrong trustee but by 6pm of the day in question, it was in our system. If I send out the default notice at 4, I miss his payment and maybe end up irritating someone as much as Countrywide. Yesterday we had a quick discussion about whether we overcharged on an extension fee by $1500 (total fee was $27,000). Turned out that we did because no one was responsible for checking whether the payoff would occur on the 1st of the month or the 30th.
I have no truck with the servicers, but I want to poke the loan approval committee with a very sharp stick.
Bill M: "I do not keep statistics on what forces people into bankruptcy"
A plurality of bankruptcies are caused by medical expenses. This is exacerbated by job loss which tends to terminate insurance benefits leading to higher medical expenses.
Several studies were done around the time Congress was deliberating on amending the law in 2005. The New York Times had a decent article about it. Try Google: "new york times harvard bankruptcy" also "Testimony Elizabeth Warren bankruptcy" has some interesting references.
It'll be interesting to see if that changes in the current market conditions. But I haven't seen any actual evidence of that yet.
"Robin's sister died unexpectedly, prompting Robin to take a few weeks of unplanned leave from her job."
Robin took a few months of from her job or Robin was fired.
"They got behind with their bills."
They were already behind with their bills.
"The family had no significant debt other than their mortgage and auto loans."
The family had significant debt becuase they used the refi $$ to buy matching hummers and the $5-10K credit card debt wasn't significant compared to the other debts.
My guess is that a large portion of the "fees" added to the Atchley's UPB may have been attributable to force placed hazard insurance CFC likely obtained through their subsidiary Balboa Life & Casualty. Balboa Life & Casualty is one of CFC's only "performing" business segments. Q1 2008 pre-tax earnings were $181M vs. $57M in Q1 2007.
The margin in "force placed" insurance appears to very attractive. I doubt that Balboa's increased earnings is due to an improved capture rate for "regular" hazard insurance.
You hurt me.
Ouch
God, I love a great epic story!
Re: although we will at least note that if Countrywide is currently running a highly profitable business, theyre disguising it well.
Go get those snakeball bastards
Cripes! Tanta, any relation to Robert Caro?
I do believe that you've set a new record! Brava Tanta!!! I think the tag "Dostoevskian" would be the right thing to do.
I think the tag "Dostoevskian" would be the right thing to do.
Really? The problem in most Dostoevsky novels that I remember is that everyone is the good guy.
Perhaps you were thinking of Tolstoy?
You hurt me
Um, I didn't mean to.
OK, I'm recovering.
If Wretched wants to focus on greedy profiteering, how about Countrywide's apparent outsourcing of its operations to two drunk monkeys and a Roomba?
That party didn't last, unfortunately, but while it was in full swing it certainly saved Countrywide enough coin for a lot of Tangelo's tanning sessions.
Two drunk monkeys and a roomba? hahahahahahaha. That was great.
Thank you tanta.
PS Why such short posts lately?
ha I cant believe I wrote that line with a straight face!
Most egregious statement in the AJC article (4th sentence):
Unlike many families caught up in the mortgage meltdown, the Atchleys did not lose their house because they couldn't make their mortgage payments.
O RLY?
First, yes what we have here is people attempting to tread water 6 inches below the surface. Countrywide had a duty to to distingush between catching up and and fallen behind and not catching up. That said;
"...in this case Id be inclined to give Countrywide the benefit of the doubt."
There's at least one major accounting firm no longer in business that tried excuse that vis Enron. Heck, 99% of Enron's bookkeeping practices were perfectly acceptable.
Countrywide is on double secret probation. They don't deserve the benefit of the doubt even in cases where it seems they were just doing their jobs.
It must be journalistic style to recount the anecdote of a specific borrower with a touching personal story (mostly a medical issue) for you, the reader, to overlook the fact that the sweeping generalization applies to those who bought more house than they could afford under lax credit conditions.
I've given numerous background interviews to reporters on complex trade issues and without exception they end up horribly mangling what I told them. I've come to the point that I wonder if it's really the writer or their editors who cause the carnage.
Then again I can't explain how to sit to my dog, so maybe it's me.
And what favor do these reporters think they are doing for the poor Atchleys? I mean, I'm not happy about writing about them by name on a blog and getting into their mortgage payment habits. They deserve, like everyone else who has paid the price, a decent obscurity.
Yet they talked to a reporter who wrote them up as a sob story, by name, making unfair allegations against a company and insinuating that this problem is sufficiently widespread that Congress should get on it. That rather requires those of us who care about the actual facts to drag the Atchleys back through the whole thing. Some favor those reporters have done for them.
I wonder why more journalists aren't politicians. Both feel the need to overly simplify (i.e., dumb down) stories for mass consumption, and usually to support some not-so-hidden agenda. Terribly misleading and condescending.
What about this:
Philadelphia put in place a moratorium on all foreclosure auctions for April and implemented other measures aimed at helping slow foreclosures.
I've given numerous background interviews to reporters on complex trade issues and without exception they end up horribly mangling what I told them.
All I can say is that both reporters in the current case had access to the written Trustee's Complaint that I did, and that--unless their Internet privileges have been revoked for bad behavior--they can look shit up on the county recorder's website, too.
I did not rely on any oral statements in my post. I have not, nor do I intend to, interview the Atchleys or anyone else. I just, well, read.
If the Atchleys were willing to go the record and air their grievances then really they can have no expectation of privacy on the whole matter. Most likely they have told the self serving version to friends and family so many times that they believe they really were wronged.
The reporter is helping air their grievances to the world. There's never any guarantee that the world isn't going to hit back.
"I did not rely on any oral statements in my post. I have not, nor do I intend to, interview the Atchleys or anyone else. I just, well, read."
Reading is reactive REAL reporters go out there and get the story that HASN'T been told!
Or some such nonsense.
The reporter is helping air their grievances to the world. There's never any guarantee that the world isn't going to hit back.
Right. And I only said I wasn't happy about this; I obviously was willing to do it.
My point is that any reporter who was not born yesterday has to know that people will air grievances if you let them. Both reporters refer to this Trustee's Complaint. They had it before they wrote. It should have made them slow down a bit.
That's the sense in which they didn't do these folks any favors.
And it looks, per Gretchen, that Mrs. Atchley is going to testify in front of Congress.
According to Freddie Mac, the average 30 year mortgage in March of 2004 ranged from a high of 5.59% to a low of 5.38%. So let's say they were an extreme loan risk, and instead of a standard 5.5% rate than many of us would have gotten, they got a 30 year fixed rate 1.5% higher. Their monthly payment on a $161,900 loan at 7% would have been $1,077.12, not including taxes and insurance.
One would have to surmise that the couple is pretty financially unsophiscated given their mortgage decisions. It would seem to me that it was ignorance on the part of the family, and downright greed on the part of the mortgage company.
Sorry, but in my mind, this couple was preyed upon by unscrupulous mortgage lenders.
"And it looks, per Gretchen, that Mrs. Atchley is going to testify in front of Congress."
Well ok then problem solved. No doubt our legislators will dispense with this matter in a straight forward, logical, and non inflammatory matter.
Shnaps,...if you lived in Atlanta, you wouldn't even use the AJC for toiletpaper....fur yur dog.
Re: "they can look shit up on the county recorder's "
I think this is the crux of the subprime "problem". i.e, people didn't know shit and they had no clue what kind of shit they were getting into, and the people that sold them a line of shit, didn't give a shit!
I was really surprised to get to the end of this and find out that Darth Vader was Lukes father.
Who knew!
Sorry, but in my mind, this couple was preyed upon by unscrupulous mortgage lenders.
You notice, however, that they did not make that claim.
I don't know why you would assume that they would get a rate of no more than 150 bps over the GSE fixed rate. Many subprime borrowers pay rates 200-300 bps or more over "prime."
But they would surely have been money ahead to keep that 7.75% loan rather than refinancing one year later into a 10.10% loan. I agree that you have borrowers without great financial skills here. But they don't say they were duped into that refi; if we take the AJ-C seriously, they wanted that cash to make improvements to the house and did so willingly.
If they had at least one late payment on the first 7.75% loan, which isn't exactly hard to imagine, that would account for part of why the rate on the next loan was so high (that and the fact that it was a high-LTV cash out).
Just FYI Tanta... the Atchleys bought the house for $179,900 as indciated by the transfer tax amount on the face of the real estate deed from Woodall Construction in March 2004.
Thanks, Cherokee County RE Attorney. I was too lazy to try to look that up. That would make the original purchase loan 90% LTV.
You can see why these borrowers tried to hang on so long: they felt they had "skin in the game." God knows what appraised value came back in March of 2005.
But the fact that they were delinquent by payment 4 tells me it was very simply a capacity problem.
Tanta, you just make me wanna cry and nominate your line for consideration in the next indicative edition of the MMI:
"to do so is to leave the land of unintended consequences, to which any policy solution is susceptible, and arrive at barking up the wrong tree."
Sob)) I want to thank the Academy....
I was kind of proud of that one, crucialtaunt.
My math says that, given the 179.9k property price, the Atchley's put 10% of the purchase price down (including closing costs which appeared to be roughly 4k).
They ended up with a 90% LTV loan. Previous threads have mentioned a necessary 3-5% down to avoid high-risk. The question then becomes what is the DTI.
cr writes: indeed, such incompetent and uninformed reporters that they really do accept only half a tale to begin with,
Bet on it!
Gooid job Tanta.
This story reminds me of another story the AJC ran. This woman came home from VACATION and found a foreclosure notice in her mail. We weren't' that far behind and the she was incredulous that she didn't receive 50 notices.
The AJC can really pick some horrible examples of the points they are trying to make.
Perhaps you were thinking of Tolstoy?
I was actually thinking of length and my brain did a
"select russian_novelist where novel_length = "ginormous" and novel_weight >= 100 left inner join tbl_french_novels on "proust""
but i only looked at the top result. so now that you mention it "tolstoyan" might be better
Datahead - in your mind, I'm sure homeowners in Idaho pay the same amount to insure their homes against hurricanes as homeowners in Puerto Rico.
Otherwise, those Puerto Ricans are just being preyed upon by unscrupluous insurers? Right?
I'd also be curious to get an opinion from one of our BK attorneys about this one. It does seem they had little to no unsecured debt. If you assume the only cars they had they used to get to work, and they weren't giving those up, what's the real point of a BK for these folks? I can't see that it accomplished anything except the FC stay, which is why I suspect the Atchleys focus on those stay motions as "the problem."
Really? The problem in most Dostoevsky novels that I remember is that everyone is the good guy.
Fyodor and Smerdyakov Karamazov were good guys? Learn something new every day!
Surely, TCA, you never fell for that nonsense about Alyosha being the hero, did you?
I was merely tweaking ipodius. In my own view, there isn't any difference between a narrative in which everyone is the bad guy and one in which everyone is the good guy.
there isn't any difference between a narrative in which everyone is the bad guy and one in which everyone is the good guy.
Oh lord, an existentialist post if I ever saw one! That could be worse than the gold bugs and the fiat currency ravers!
I believe the best quote about russian novels came from my undergrad lit professor who said "Reading classic Russian novels is a bit like chewing ones way though a bowling ball". Surely a quote for the ages.
Surely, TCA, you never fell for that nonsense about Alyosha being the hero, did you?
Alyosha, Ivan, and Dmitri were all admirable in some way. You could argue Smerdyakov was partially a victim of circumstance and a hideous upbringing. Still, framing your brother for murder is not heroic.
Fyodor, OTOH, was a louse through and through.
I was merely tweaking ipodius. In my own view, there isn't any difference between a narrative in which everyone is the bad guy and one in which everyone is the good guy.
IOW, "all things are permissible."
The US financial world has gotten so incredibly effed up that there aren't good and bad guys anymore. Only a few hundred million people stumbling around blindfolded in a carnival funhouse.
I guess you could posit that anyone who allows him or herself to get entangled in it is a priori a bad guy, in the same way that anyone standing around a sidewalk game of three card monte is a bad guy.
But when it comes to staightening this mess up and punishing the "bad guys," we may as well forget it, because there's just too many of them with so many varying degrees of guilt as to make it a judicially-hopeless endeavor.
But why did it come to this? My operative theory remains the same: when the currency has no basis of substance (e.g. precious metals), reality is exiled from dealings not only in the financial world itself, but also from all decision-making. Gradually, common sense dissipates and the abstract standards by which measures are made utterly dissolve.
No amount of finger-pointing, no army of lawyers, no initiatives by Congress, and no sleight-of-hand by the Fed is going to address the root cause of this debacle. After it has completely ravaged our society, we will restore order again only by anchoring our monetary base in something real--probably (at least initially) in gold and silver.
Too bad these folks didn't make it to later in 2007. They SEEM to be salvagable canditates for some HOPE NOW action. Waive some fees, put em in a 30 year fixed loan at a lower than currently prime rate and they'd probably do OK. Fair? OTOH Countrywide got their money when they sold so would they have been treated that way?
Just saying...
Question on statistics: What percent of the defaults were caused by people having medical problems that they had to borrow to pay for and then could not repay?
"The US financial world has gotten so incredibly effed up that there aren't good and bad guys anymore."
This presupposes that there ever were "good guys" and "bad guys". Me? I'm pretty sure we all evolved from monkeys, so there are a lot of "self-interested guys", and that's all there's ever been. Not that there's anything wrong with that.
Too bad these folks didn't make it to later in 2007.
The problem here is that they experienced their serious (90-day) delinquency in October of 2005. I have no idea when the market topped in Cherokee County, GA, but it's quite likely that was about it. Had they sold then, it's hard to believe that either they or Countrywide would have taken a loss.
No servicer has ever had a "loss mitigation" model that says it's "less loss" to modify a loan to a below-market interest rate than to be repaid at 100% of principal today, not when the borrower's past record indicates that future re-default is more than usually likely. I strongly suspect that having lost half the household income for "a few weeks" did not pass muster with the servicer as a "mitigating situation." I can see that getting you one month down; maybe two. But 90 days? That doesn't exactly add up to me.
It is exactly the borrowers who did "wait" until late 2007 who got trapped, because they could no longer sell.
I couldn't opine about whether they were decent workout candidates without knowing their current income, total debts, and some sense of their past payment history (before the default on the 2005 loan). I'd want to know what the history was on the 2004 loan. Something doesn't add up going from 7.75% to 10.10% in one year. Of course you can't rule out predation, except that I'm surprised these borrowers wouldn't have raised that issue themselves.
I know it's beating a dead horse, but hell, I don't particularly like horses anyway.
This story is so badly written that two of the real villains are getting away scott-free.
First, Countrywide's farcical operations model escapes with scarcely a whiff of criticism. This is what happens when you decide the plot really needs an evil genius brooding over an elaborate conspiracy hatched in his mountain fastness. As opposed to a cheap bastard too greedy to pay for anybody competent enough to use, say, a telephone or a calendar.
Second, no one mentions prices. Is the price they paid a logical next step up the ladder for a resident of a single-wide? I doubt it. One suspects--but can't examine in this story--that the subprime programs designed to "help" such buyers merely served to inflate prices beyond their financial reach.
But hey. Whose interests are served by efficient but competent operations, or realistic real estate prices? No one. Back to work.
Can't help but state that for virtually anybody with any financial common sense, it would not be unreasonable to expect that the 3/27 loan with a start rate of 10.10% would fail.
So who benefits? Like you said, the originator that sold them that piece of crap, and the builder.
Lots of bad money advice being dispensed by the loan agents, and a complete lack of due diligence by the money lenders.
Sorry, I left out the "No" after "Fair?"
I'm just surmising that isnce they seemed to be coming up with regular chunks of serious cash to try and catch up it seems they were within a hairs breath of affordability. OTOH if they were "worked out" then failed again due to those income facts we don't know about the loss only gets worse over time. No easy answers eh?
What percent of the defaults were caused by people having medical problems that they had to borrow to pay for and then could not repay?
I don't know anyone who keeps "statistics" on that specific group of people.
Certainly a significant number of personal bankruptcies are due to medical bills. But those are generally--as far as I know--unpaid ones.
It is, frankly, hard to know what people use unsecured loan proceeds for. Some people surely do use HELOCs or credit cards to pay medical bills with, but those show up in the "statistics" as HELOCs and credit cards, not unpaid medical collections. For a lot of people, the debts rack up not because of the medical expenses (which are covered under insurance), but because of the lack of paid leave or the inability to continue working. That's a "medical issue," but it's the kind of thing servicers often class under "interrupted income" rather than "too much debt."
In this particular case, by the way, the medical problem does not appear to have been one of our borrowers'. Her sister died suddenly, and apparently she just couldn't function at work for several weeks. I can relate; I suspect most of us would be a wreck in that situation. But I didn't see anything suggesting that the Atchleys were responsible for the sister's medical bills. It sounds as if they simply are so tightly budgeted, paycheck to paycheck, that a few weeks without one paycheck destroyed the household cash flow.
I was fascinated by the choice to include the single-wide detail (rather than just saying, for instance, "their previous home" or "mobile home").
It sounds as if they simply are so tightly budgeted, paycheck to paycheck, that a few weeks without one paycheck destroyed the household cash flow.
Count that as the third fugitive villain in this piece.
I'm just surmising that isnce they seemed to be coming up with regular chunks of serious cash to try and catch up it seems they were within a hairs breath of affordability.
Well, I did include all the facts I know. Anything else is just speculating.
That said, the pattern with these borrowers strikes me as a very classic kind of subprime behavior: they pay, but only at the last minute and only after you have literally sent the FC notice (or filed the motion to lift stay). There is a group of poor money managers who pay like that (as long as they can). They skip the utilities until the disconnection notice arrives, then bring it current, then a few months later it goes DQ again. The only thing that seems to work is the immediate threat of disconnection or FC or repo or whatever. As I said, it's a game of chicken with the servicer. As long as they do keep brining it current, nobody really wants to foreclose. But you can't stop threatening them with foreclosure, or it won't keep coming current.
Of course it's possible that either or both borrowers ended up at the point of having only sporadic income--temp jobs, perhaps, or highly variable hours. That could explain the erratic payment schedule.
It would not, though, make a servicer highly motivated to give them a "prime" interest rate on a 30-year fixed, if the "average" of this sporadic income wasn't enough to cover one payment per month.
I'm a reporter. Aggrieved consumers come to me on a fairly frequent basis, wanting me to tell their stories. Most of the time, when I look into the details, I see the kind of mind-numbing complexity that Tanta is describing here. Those kinds of things can't generally be turned into "newspaper stories" without ignoring the inconvenient facts that don't fit into the mold--if your mold is "predator and victim" or something simplistic like that.
To me, the Atchley case would be a good one to use to illustrate the complexity of lending, borrowing, bankruptcy--a case that makes one of Tanta's favorite points: mortgage loans are complex, and trying to come up with some blanket approach to fix all the problem loans at once is nonsensical.
Ditto Markel.
People like this will argue that they "just had to" take unplanned, unpaid leave when they don't "have" that option. I'm sorry the woman's sister passed, but seriously, people go back to work all the times after family tragedy's because they HAVE TO.
Personally, I long for the days when people like the Atchley's could graduate from high school, get a high paying factory job and not scrape by their entire lives. But those rules changed 20 years ago or more and I'll admit to a growing anger at J6P's refusal to accept this (and vote their own interests.)
Dear CR:
I know I am probably going to be throughly trashed for these comments; however, here they are. I can tell you with almost 100% certainty that the local courts here would simply tell CountryWide to "suck it up", you made a loan to these guys and you will live with it-- and, by the way, the interest rate is 5.5%, so you get a hugh fine for that. As long as they are trying to pay--they stay!!
This all comes from the requirement that banks and lenders must add to community welfare as the price of doing business. The appraiser would be be licensed by the government and would set the price as well as the tax rate and price. If he lies, he goes to jail where he can provide his own food and cloths.
This article seems to illustrate that people in general do not know the price of housing, what is a good and a bad loan and tend to take the advise of salesment and loan agents. This whole idea is called 'social responsibility' and we demand compliance.
Is this a 'bleeding heart liberal' talking? Nope- in every way, NO! We just have first hand knowledge of places where the 'little guy' gets screwed, and when he gets screwed enough, he votes for the politicial who tells him 'just take the rich man's house'-- and he does.
This is a problem you do not have; however, it seems to me that you may be getting close to seeing it 'up close'. I sincerely hope not. You are right, the Atchleys are sub-prime. Yet they tried very hard and could have probably made it with some help and financial institutions who had thier interests at heart as well as trying to make their investors a reasonable return.
Oh well, so much for an opinion from us 3rd world people.
yesterday's predatory lender is today's sucker.
...there isn't any difference between a narrative in which everyone is the bad guy and one in which everyone is the good guy.
That's good to know, since one of these narratives goes to a vote in November.
At the risk of repeating something that I am sure has and will be said umpteen times on this thread, on the subject of good and bad in this saga:
Before I enter into any contract, I ask the fundamental questions of:
Do I understand every word of the contract into which I am about to enter, however nuanced?
Can I meet my end of the deal for the length of the contract? Come hell or high water? Even if the events of my life over the term of the contract develop along the worst case scenario for me?
In my opinion, the question of good guys and bad guys can be assessed very neatly along what one's truthful answers to the above questions are.
That said, nobody is perfect and bad things happen to good people. I think there is already enough slack in the system for those situations.
I don't really give a sh*t if the lawyers or the brokers or Ben Bernanke misled anybody or if Santa Claus doesn't really exist after all.
My integrity is more valuable to me than theirs is to them. If that makes me a schmuck, fine. It it makes me a better person, fine. I don't care. My values are non negotiable and they are not subject to trends or fashions.
3 weeks leave because the sister died?
My first rule of thumb on LOE's was if it was really that tragic, you wouldn't be talking about it.
You wouldn't exploit the tragedy to get a loan. In this instance, you wouldn't exploit the tragedy to get your name in the paper so that Gretchen could go on about Great Satan Countrywide.
Sisters die. Fathers and grandmothers die. Children die. You make the choice to not let the grieving process consume your time and income. You make the choice to greive quickly, quietly and with the dignity that shows your three boys that you won't need to borrower their lawnmower pay for gas money.
You decide that you will show them the strength it takes to be an adult and do what it takes to keep the roof over their heads. You decide not to blames the passing of a beloved sister on your inability to budget.
OK - but if Gretchen helped kill Countrywide (and they are a leach upon the land), she can't be all bad.
Tanta, the high APR on both loans you say implies they had a bad credit history.
Even so, they purchased the place with 12% down, and utility linemen jobs are stable and pay well.
The 7.75% rate on the first mortgage seems pretty excessive then. It sounds to me like they were taken advantage of. Maybe with 4 kids and 2 adults living in a crowded trailer they put too much trust into the smooth talking indymac broker rather than spend a lot of time looking for better rates.
"I have no idea why the Atchleys increased their monthly payment by over $400 in order to borrow less than $20,000 in new money."
To put it bluntly, a big segment of our population is financially illiterate. They do not understand basic concepts like compound interest and market interest rates. For a long time we had usury laws to protect them, but the Republicans on the US Supreme gutted state usury laws in the 80's and 90's.
Now we have 800% APR payday loans and predatory cash-out refinancing offers filling our public airwaves and our mailboxes and homeownership dropping for the first time in more than half a century.
Can I plump for Ulysses instead of any Russian tome? A day in the life that goes on forever and one needs to refer to the notes all the time.
Keep it coming. Always good to read.
Foreclosure attys do not earn humongous fees. I have never complained about their fees once while contesting foreclosures. In fact, I wish they'd charge more, and do a better job.
Likewise, I have run into a couple of cases (with Washington Mutual, where the customer's account was so screwed up it took me a whole year to straighten it out.
Much as I love to bad mouth lenders these are RARE events.
Who took their money to file a Chapter 13 and when?
These people had nothing to lose--their credit was stinkin' up the single-wide, based on the aggressively priced 90% LTV they were offered; they had no liquid assets; they had no equity in their new home; one suspects that they were upside-down in two cars as well.
If some bankruptcy specialist took $1300 from them as her/his last act before turning out the lights on a formerly profitable Chapters 7 & 13 practice that headed south after the 2005 'reform' passed, I nominate her/him as the villain!
What was the prize again? I get to skim another 6000 word parsing that shows more insight into the foreclosure of the Object Lesson than was displayed by the Object Lesson in the story?
It sounds as if they simply are so tightly budgeted, paycheck to paycheck, that a few weeks without one paycheck destroyed the household cash flow.
That makes me wonder about the lack of escrow on the origination of the refi.
Tell me again why banks bothered to gorge themselves on subprime... Oh it was the predatory fees. 10% interest! How nice. I'm sure that more than offsets the costs of foreclosure. If it doesn't - tough.
The 7.75% rate on the first mortgage seems pretty excessive then.
Actually, I suspect it was about average for a subprime 2/28.
I could look it up, but why do that if bacon dreamz will do it for me?
Here's what I want to know: Who do I have to kiss to get a Deeply Moving Story about the motive that drives Countrywide to add expense fees to this dog of an account? It's not as if they or the Trustee or the delinquent borrowers think that this money is about to appear.
Are they tacking on the $1900 or $2300 or whatever because they need the additional paper loss? Does it legitimize the risk they took (and securitized and sold to my mom's pension fund), in their febrile imaginations, in lending to this type of borrower?
It's not just about adding insult to the injury of offering a 3/27 at 10.something to a family that is three weeks of missed wages from foreclosure; it's also about extending the pretense that anyone thought the Atcheleys would pay on this loan after their first speed bump.
Can someone put all this on a bumper sticker for Barney Frank's aides to read? I'm thinking something along the lines of, Subprime loans cost more because the bank risks more; this is an example of why that is.
10% interest! How nice. I'm sure that more than offsets the costs of foreclosure. If it doesn't - tough.
Look. Their models told them that the increased frequency and severity of loss on the 10% loans would result in a net yield about the same as prime interest rates.
Their models were of course wrong, but that, well, is my point. Not "sympathy" for the lenders, just shock that Gretchen can claim they're making money hand over fist when it has, like, been in the papers that their great model failure is bankrupting them.
Look, if these subprime servicers were makin' money on this stuff, they'd be telling us. You can count on that. They'd all love to have something to tell the analysts except "we're bleeding money left and right."
Morgenson's piece is 565 words. Her editor probably gives her up to 600 words and then forces further edits if the page layout requires it.
Tanta's piece is 4013 words.
CFC behaved badly. CFC and their lawyers have adequate resources to defend themselves if they feel they have been misrepresented by the NYTimes. They don't really need Tanta's help.
Who do I have to kiss to get a Deeply Moving Story about the motive that drives Countrywide to add expense fees to this dog of an account? It's not as if they or the Trustee or the delinquent borrowers think that this money is about to appear.
Uh, it did appear. The borrowers paid it.
I'm afraid that's why the posts get so long, you know. Lots of details. But the borrowers appear to have netted $197,000 from the home sale after paying the RE commission, they added their own $2K to that, and paid in full the entire payoff amount. Including all fees.
CFC and their lawyers have adequate resources to defend themselves if they feel they have been misrepresented by the NYTimes. They don't really need Tanta's help.
I'm not trying to help CFC.
I am trying to help the rest of us whose tax dollars are going to be used to legislate against "unnecessary foreclosures."
The one example that the Times could come up with isn't an example at all. You don't think that's newsworthy?
And yes, I am entirely disgusted with this "well, it's CFC, they're guilty of something anyway" mentality. That's the logic of a police state.
I could look it up, but why do that if bacon dreamz will do it for me?
7.05% was average for subprime 2/28s in 2004. can i get you another cup of coffee while i'm at it?
can i get you another cup of coffee while i'm at it?
Don't be silly.
It's long past the time I switched to cough syrup.
investmentBanker: Where is "here"?
I also noted the single wide reference. There are many manufactured homes in the South but almost all are double wides that I see. Hell I thought they quit making single wides which is about the bottom of the housing barrel. Below single wides is a plastic drop cloth in the state forest. From single wide to $180K house with homeowner fees(unless a large jump in income) seems a stretch.
Another point. Given the ages of the four children, I wonder what the plans were for their education. Refinance probably if the need was ever considered.
Jim
And yes, I am entirely disgusted with this "well, it's CFC, they're guilty of something anyway" mentality. That's the logic of a police state.
Not a police state - just good ol' fashioned populism. Sometimes the deck gets so stacked against folks. When they try to make progress the sharks come out to feed. This subprime disaster seems an awful lot like a feeding frenzy. Dangle the American dream in front of illiterate (Ok unsophistacated) subprime slime then clean up in fees. This time their greed got the better of them. We all know the deadbeats are getting their punishment.
And yes, I am entirely disgusted with this "well, it's CFC, they're guilty of something anyway" mentality. That's the logic of a police state.
Well you better get used to it because that's the direction were heading in.
investmentBanker: Well said. Best comment in thread, imo. We 'mericans just can't come to terms with the notion that political risk is something that applies to us as well. All in the fullness of time . . .
Tanta wrote: "To sum up, then: there is evidence here of gross incompetence on Countrywides or its attorneys part in failing to amend its Proof of Claim (probably on several instances). Its behavior in not refunding improper payments from the court until the debtors filed motion is indefensible. They should collectively get their butts kicked for that, and it appears that they will."
and then she wrote:
"And yes, I am entirely disgusted with this "well, it's CFC, they're guilty of something anyway" mentality. That's the logic of a police state."
Even if CFC's actions in this case were an isolated incident Tanta's comments would be, um, ambiguous at best.
Do you really think that CFC and their industry had and has insufficient influence in Congress? Do you really think that what eventually comes out of Schumer's committee won't be diluted to the point of uselessness once the financial industry's toady's on the Hill are finished with it?
This taxpayer prefers his dollars to err for a change on the side of defending the "little people".
Clear and concise, Tanta. Read like a Supreme Court decision.
2963 words; a true Tantayac would never include the cut-and-paste. As I said, brief compared to the 4600 word piece I so much enjoyed a couple of weeks ago.
Tanta: There is a group of poor money managers who pay like that (as long as they can). They skip the utilities until the disconnection notice arrives, then bring it current, then a few months later it goes DQ again. The only thing that seems to work is the immediate threat of disconnection or FC or repo or whatever. As I said, it's a game of chicken with the servicer. As long as they do keep brining it current, nobody really wants to foreclose. But you can't stop threatening them with foreclosure, or it won't keep coming current.
It's called "The Crisis Management Lifestyle." My brother has lived that way for decades. Puts oil in the car when the light goes on. Smokes the last cigarette on the way to the store for more, even if it's in the middle of the night. Never pays bills until shut-off is imminent.
Drives me totally effing nuts. I couldn't sleep at night living like that.
Yes indeed, Paul, good ol' fashioned populism. Speaking of which, did you see the good news on foreclosures today: down 24% YoY in the Keystone state. How did they do it? A little good ol' fashioned political intervention. Better get used to it people.
Home foreclosure rate continues ugly climb - Real estate- msnbc.com
It's long past the time I switched to cough syrup.
oh yeah. i always forget you switch to cough syrup promptly after reading a GM article. silly me.
Bacon Dreamz,
"7.05% was average for subprime 2/28s in 2004. can i get you another cup of coffee while i'm at it?"
Might I ask what you're using as your dataset? Also a nice grande latte with a shot of vanilla.
BG, that's from Loan Performance, so it's just the average for securitized loans.
C'mon...anytime you mention "Countrywide" and "excessive fees" in the same paragraph, you KNOW where my sympathies are gonna be....
Do you really think that CFC and their industry had and has insufficient influence in Congress? Do you really think that what eventually comes out of Schumer's committee won't be diluted to the point of uselessness once the financial industry's toady's on the Hill are finished with it?
Of course it will be useless. No one will stop to ask what the real problem is. They only want to talk about the "problems" that play well with the voters at home.
This one's a great example. We'll get some federal law that says servicers can't move to lift stay until a 60-day DQ has been verified. BFD. 99.9% of the time they do that anyway, and in the current case it looks like they tried to in what seems like good faith to me. But what will it "hurt" to make an unnecessary law about it? It won't really impact the financial industry, it won't magically provide income for people like the Atchleys, and it'll make us crackers at home happy to see ol' CFC really get it. Right?
Tanta,
Your post raises a boatload of issues. I can only speak of my own experiences.
There is a problem in the mortgage servicing industry. To simply state it: their accounting is a joke, and not a particularly funny one. One case that springs to mind is that of Nosek v. Ameriquest, which is an Adversary Proceeding in Massachusetts. In that case, Ameriquest effectively told the Bankruptcy Court that it could not change its accounting practices if one of its borrowers filed bankruptcy. They essentially said we cant change how we do things just because one of our customers goes into bankruptcy we just do not work that way.
By not changing the practices, late fees would be assessed and interest would accrue in direct violation of a confirmed chapter 13 plan and the US Bankruptcy Code. Youll find the case at 363 B.R. 643 (Bankr.D.Mass 2007), and just last Friday, the Bankruptcy Court assessed sanctions against Ameriquest and its law firms for basically making material misrepresentations to the court. The AP docket no. is 07-4109.
In my experience, I have been increasingly frustrated that lenders are filing Motions for Relief from Stay for nonpayment of post-petition mortgage payments, only to learn that their allegations are not correct. Its not limited to Countrywide. It is very frustrating to instill in debtors their chapter 13 obligations be confident they will adhere to those obligations, only to see a Motion for Relief from Stay filed because one office of a servicer is not speaking to another.
Ive seen payments not applied correctly or payments not applied at all. Ive had to call up servicers/lenders counsel and say tell me exactly WHO my client is to because it doesnt get properly credited. One of my debtors recently took a photograph of his payment, the addressed stamped envelope, and a copy of that days paper just in case the mortgage company attempted to claim he did not make the payment. He offered to video tape himself walking to the mailbox and putting it in, but then I feared hed have to follow the mail truck to ensure it got to the correct postal facility.
Sometimes the lenders are right in their motions, sometimes they are partially right, and sometimes they are so wrong that it makes me wonder how these folks can pull their pants up in the morning without wreaking havoc in the civilized world.
While I appreciate the amount of research you did for the article, Im not sure we have everything we need to fully and fairly assess the situation. I am not saying youre wrong but I have a difficult time swallowing that the Office of the US Trustee is spending so much time and resources chasing Countrywide over something that is ultimately trivial.
My point is, for the bankruptcy process to work, we must be able to rely on what lenders tell us in their motions much like we must be able to rely on the fact that a confirmed chapter 13 plan will be adhered to by creditors, debtors and trustees. A confirmed chapter 13 plan creates obligations and memorializes expectations. We must be able to rely on what lenders represent in their proofs of claim. When we get a pay-off figure, it should be supported by something, and just not be one big number that someone thinks that no one will have the time or the inclination to dissect. When it gets to that point, those pay-off figures/big numbers become fertile ground for burying fees and costs that should not even be there to begin with.
Finally, on the whole sub-prime mess and whats a classic sub-prime borrower, there are some folks who fit into that. And youre spot-on: it is a matter of fact, and not an insult. However, the Atchleys fit the profile of what I view as a typical bankruptcy filer. Its not uncommon for one of three big life events to lead someone to the steps of the bankruptcy court: (1) divorce or death of an income earner; (2) illness in the family; or (3) lost job or loss of income. While that should not be read to mean that only those folks end up in bankruptcy, its worth noting that the Atchleys experienced two: loss of income, and illness in the family. There may have also been some level of financial illiteracy, which is more prevalent than I think many might be inclined to believe, but theres nothing in the facts presented for us to make a strong inference.
How and why they refinanced in what appears to be a lousy loan and end up with Countrywide is anyones guess. It looks like the Atchleys were doing everything they could to keep their home and retain some dignity (its not like they went into a Chapter 7 and walked away). It appears that they were living penny to penny, and paycheck to paycheck. So for them, every penny counts. And if the US Bankruptcy Code essentially says that in a confirmed Chapter 13 plan every penny counts why shouldnt the US Trustee be looking at Countrywides practices? And why shouldnt Countrywide or any other party who is not playing by the rules pay a price or not doing so?
Thanks for letting me chime in,
Bill McLeod
Even after reading your magnum opus we don't know if the Aitchley's entered into the original mortgages knowledgeably and in good faith or if they were fools or victims.
As you said in your intro there is a lot of blame to go around. I place most of the blame on the "industry", on lax regulators and Congress's and Presidents who were happy to grease the wheels in exchange for campaign contributions (and more?).
So what was the real problem? The periodic infatuation societies get with the magic of leverage and the conviction that this time "it's different".
So will we go too far in the opposite direction? Probably. And it's about time.
There's one aspect not addressed here - loan servicing. Loan servicing fees have dropped dramatically over the last 10 years. I would bet that most loan servicing workers have only high school diplomas.
When a borrower files bankruptcy it is likely that the business person assigned to it at the servicing company really isn't trained to handle this type of thing and doesn't have a good grasp of how bankruptcy works. The attorneys rely on the loan servicing folks for timely information.
Therein lies PART of the problem.
In the FWIW category, I have an order determining that Countrywide overstated the amount of fees it was owed after a motion for relief. The excess was about 3K out of an alleged 3.5K. They also have to pay my fees.
OT and just for fun... well some of us think enforcement actions are fun!
http://www.banking.state.pa.us/banking/lib/banking/consumer_information/2008_enforcement_actions/source_mtg_corporation.pdf
Background - Section 6
I think what happened is that the reporter had a story to write and just found a story to fit (after filing off the rough edges) the already decided upon script. One of those "higher truth" things - and a major reason the MSM has less credibility by the day.
There is more honest reporting in the blogosphere than any regular media outlet I could name.
Most blogs have a slant - but you know what it is upfront - no pretense of "unbias." And better investigation (with all too few - but very important - exceptions) happens often and in real time on one thread after another.
It would be a great and wonderful thing if major news outlets each had investigative divisions that conducted hard-hitting" let the chips fall where they may" investigations of the issues crucial to us all.
That is expensive, however - and the bean counters don't like it. Far easier (and cheaper) to half-ass everything and mold "facts" to fit pre-ordained molds. That's how we got into this lousy war - and how the criminally irresponsible political hack Greenspan became known as "The Maestro" as he and Bush destroyed the economic foundation of our country.
Also when you have entities like Countryside running around acting as if they are the Wise and Wonderful ones, saying "trust me" up the wazoo and doing everything they can to convince the sucker, excuse me, BORROWER that they should be "trusted" and treated as "experts" in the area, then sorry, my empathy for their problems gets down to a very tiny violin.
Basically, if you claim you're acting in a fiduciary manner, then you should better damn do so, and I think the law should come down on you like the proverbial ton of bricks if you don't.
Bill McLeod wrote: Finally, on the whole sub-prime mess and whats a classic sub-prime borrower, there are some folks who fit into that. And youre spot-on: it is a matter of fact, and not an insult. However, the Atchleys fit the profile of what I view as a typical bankruptcy filer.
Regarding the use of "however"...how different are the two categories? As what Tanta calls a "civilian", in both matters, I really don't know, but everything I'm reading here and elsewhere suggests they have a lot in common. And, if so, then I'd probably feel even more confident in thinking that BK cramdown proposals are a good idea.
BK cramdowns are a great idea. It will establish precedent and encourage many parties to work out restructures without having to go to bankruptcy court. There is legal precedent from the 1980's when farmers faced similar struggles.
After the precedent in BK court was established, loans were modified and people kept their farms. Something similar will need to be done in this current crisis.
Thanks for doing all that research. It certainly throws more light on the story even if there are still some missing pieces.
I know some people like this - crisis to crisis with the utilities and the mortgage and the daycare. It seems like a horrible way to live.
If we are going to take care of people like this (and maybe we should), I'd rather see it on the front end. I remember when banks wouldn't give you a mortgage if you plainly couldn't make the payments. I guess it was paternalistic or whatever, but it seems like a much better system to me.
Tanta, as always a fabulous job. But I am perplexed by the tone regarding the US Trustee. It seems to me that Countrywide's treatment is a pretty logical continuation of the destruction of its reputation, as well as other financial institutions such as Deutsch Bank in other bankruptcy courts. There have been multiple incidents of filing fabricated (misunderstood?) documents, or being unable to produce even the most basic documentation to support any claim whatsoever.
You've written in the past about how some of that paperwork makes some perverse sense within the mortgage community, but lawyers, judges, and laypeople have not been sympathetic to that degree of apparent incompetence.
Countrywide's treatment makes perfect sense to me in the context of how these bankruptcy judges have been treated by financial institutions' lawyers recently. Just because the Atchleys's situation merits foreclosure doesn't mean you have a happy judge or trustee. I'm not the least sympathetic to Countrywide, no matter how unfair the trustee is being, as I know how things would go for me if I pissed off a judge. Antagonizing judges is on the list of Things you just don't do. Fairness, really, has nothing to do with it.
That Countrywide's financial accounting doesn't seem to engender much understanding in BK court proceedings, amazingly, turns out to be Countrywide's problem.
I'll throw one idea into the pot. Nothing gets the government more pissed off than when you play them for a sucker over money that they control.
True Countrywide jumped the gun and stepped on their own dick multiple times and the Trustee was not amused. But what got the Trustee really mad was collecting settlement payments from the court after the home was sold and also trying to collect additional legal fees without amending the court filing.
I have a co-worker who lives as I assume the Atchley's live.
While trying to help counsel her out of debt (with a $125k+ family income), I suggested tackling the smallest debt first and paying the most she could afford towards paying that debt off while making the minimum on everything else, then once that bill was paid, add that amount to the next smallest bill + the minimum payment it required. Last, I suggested taking whatever her checking account balance was on payday and putting 1/2 into savings and repeating that every payday.
She looked at me strangely. I asked "is there anything left in your account on payday?". Her answer: "No". Next question: "are you making anything other than minimum payments on any account?". Answer: "No."
Internally I shook my head at how badly her finances have been handled. To my knowlege, she has no car payments and the family rents their two bedroom/one bath home for about $1K a month. They do pay child care fees of around $800 per month. Other than their rent and childcare costs, I guess the rest of their income goes towards servicing their consumer debt payment...or something.
I suggested she consult the consumer credit counseling service in our city as her next step. Some truths are just too hard to be heard from a co-worker. To date, she hasn't followed through.
Oh yes, she and her SO and their two kids really want to buy a home and next week they plan to buy a SUV (Expedition). Atchley's redux.
My advice may not have been the best but it got our family out of consumer debt a long time ago.
As for the Atchley's? We bought our first house in the late 80's. We were young and had OK, but not great, credit. Our initial interest rate was 10%, I had co-workers with worse credit who had interest rates as high as 18% on their mortgages, I don't recall any of us walking away from our freely agreed upon contracts with the banks (who weren't much friendlier then!)
One year into that mortgage, I had a medical issue that cut my portion of income by 50% for nine months but we never missed our mortgage payments. We ate poor.
We had an FHA loan with a 3% down payment with a mortgage debt to income ratio of around 40% (somewhere close to the highest allowed). We were prime, but only barely.
What's my point, besides pointing out that I'm an old geezer? I think people took on debt more seriously 20+ years ago, and their word and their bond and their signature on a contract meant more back then.
For the youngsters? We already had the option of ARM's and other nefarious banking schemes, I guess most of us didn't bite on them, those with iffy credit preferred to pay those 18% mortgages every month rather than not know how much the house payment was going to be when it reset.
Not to say that some of them haven't HELOC'd the house these days...but that's never been our idea of paying for extras.
@ Emma Anne | 04.29.08 - 10:44 pm |"If we are going to take care of people like this (and maybe we should)"
I really don't believe that we should and I'm a Democrat. But I really don't believe that we should. At some point we become enablers and I don't want taxpayers/savers/frugal people to bail out those who lack financial sense.
Another anecdote, hopefully shorter than my last one.
A couple I know with a good income bought a house in 2001. Nice young couple who got in before the madness hit, one child. They bought a 5/4 in a soon to be hot area, the husband chose to HELOC that house into a place that they couldn't afford (new boat, new truck to pull the boat, vacations (without the wife and kid) a side business that made no money).
Within three years they owed more than $300K more than their original purchase price and it all went to his wants.
Without a doubt she was (I have no words) to go along with those refinancings but the end result was a divorce and a loss of the house to the bank.
Should taxpayers/savers/frugal livers pay to have kept them in it?
I feel badly for her, but no, I don't want my tax dollars going towards anything that enriches people who get to keep their ill-gotten gains.
Of course, he kept all of his toys, even though California is a recourse state once you do a refi. There are too many to take to court.
Tom Wrote: Regarding the use of "however"...how different are the two categories?
I intended to distinguish the circumstances faced by the Atchleys (illness in the family, loss of income) from sub-prime borrowers who are high risk for other reasons not related to a major life-changing event. Even if they were not in a sub-prime mortgage, those life-changing events can push many people down a few financial levels. I do not keep statistics on what forces people into bankruptcy. I only know what I see on a day-to-day level.
TEBB:
I hear you on the servicing issues. I am an REO asset manager for a MF lender and while I am occasionally frustrated by our servicing folks, they do a good job for what they are paid especially since we just let a couple go (I know, I know).
They call me on a regular basis when payments are incomplete and we review the best way to apply P&I, escrows, past due amounts, etc. They can follow directions, but they also need a 'business person' to provide the documentary cover that they are applying received funds to the appropriate bucket.
I would add that the timeline as presented offers numerous opportunities to miss a payment and a filing. I typically write our default notices because I can call servicing, verify non-payment, and immediately distribute the default letter. But then, I don't have the same number of properties as someone on the SF side might and I try not to outsource my job to the attorneys.
If you remember that the mortgage check goes to some central location at the servicer for distribution, has to go to a servicing agent for receipt and recordation, and then hit the servicing system for others to be notified of receipt and application, you can miss a payment. In the meantime, as the asset manager, I'm either writing up my notice of default and calculating fees or I'm handing it off to the attorneys to take two days to fill in the blanks on their boilerplate, check the default fees, and then mail it out. There are a lot of moving parts. Needlessly complicated perhaps, but you still have plenty of people 'touching' this file.
Happened to me last week. I checked in at 4pm to see if a deadbeat borrower (repeat offender) sent his $106,000 check. He was already 15 days late so I was in no mood to cut him slack. As it turned out, it went by mail (not wire) a week earlier to the wrong trustee but by 6pm of the day in question, it was in our system. If I send out the default notice at 4, I miss his payment and maybe end up irritating someone as much as Countrywide. Yesterday we had a quick discussion about whether we overcharged on an extension fee by $1500 (total fee was $27,000). Turned out that we did because no one was responsible for checking whether the payoff would occur on the 1st of the month or the 30th.
I have no truck with the servicers, but I want to poke the loan approval committee with a very sharp stick.
Bill M: "I do not keep statistics on what forces people into bankruptcy"
A plurality of bankruptcies are caused by medical expenses. This is exacerbated by job loss which tends to terminate insurance benefits leading to higher medical expenses.
Several studies were done around the time Congress was deliberating on amending the law in 2005. The New York Times had a decent article about it. Try Google: "new york times harvard bankruptcy" also "Testimony Elizabeth Warren bankruptcy" has some interesting references.
It'll be interesting to see if that changes in the current market conditions. But I haven't seen any actual evidence of that yet.
The criminal defense lawyer in me says:
"Robin's sister died unexpectedly, prompting Robin to take a few weeks of unplanned leave from her job."
Robin took a few months of from her job or Robin was fired.
"They got behind with their bills."
They were already behind with their bills.
"The family had no significant debt other than their mortgage and auto loans."
The family had significant debt becuase they used the refi $$ to buy matching hummers and the $5-10K credit card debt wasn't significant compared to the other debts.
Tanta,
My guess is that a large portion of the "fees" added to the Atchley's UPB may have been attributable to force placed hazard insurance CFC likely obtained through their subsidiary Balboa Life & Casualty. Balboa Life & Casualty is one of CFC's only "performing" business segments. Q1 2008 pre-tax earnings were $181M vs. $57M in Q1 2007.
The margin in "force placed" insurance appears to very attractive. I doubt that Balboa's increased earnings is due to an improved capture rate for "regular" hazard insurance.