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I wish that govts at all levels will stay out of it and let private parties renegotiate to their mutual benefits. Is this so hard or simplistic?
I know that as a good American you will keep denying, Tanta, but the role being played by the USG and Fed (various interventions) are primarily to support the Crooks and NOT to help people. OK, people make bad decisions and businesses make bad decisions and problems need to be resolved. Govt should only be their to enforce contracts and existing rules at the time of the contracts.
The whole mortgage mess is because of widespread corruption in America -- American People, Businesses, USG, Fed, etc. And the corrupt people proposing solutions. For whose benefits?
Tanta,it is an election year,so of course this reeks of political grandstanding.This report was served up hot and steaming,exactly as ordered...it may not be all that nourishing,but it is certainly organic,biodegradable and high in fiber... the flies add a bit of protein.
We all know how this is going to end. Everyone will keep talking about the problem and possible solutions until everyone affected has cratered, thereby making all of the discussion moot.
It's one of the "innovative" ways we solve problems in America now.
but how do servicers and borrowers work out agreements on non-performing loans, when investors own the note?
The same way your attorney works out a settlement with the insurance company on your behalf.
The servicer is the investor's "hired hands." That is what the term means. The servicer acts as the investor's agent in performing a whole slew of necessary tasks, such as collecting payments, foreclosing, and working out. What the servicer can and can't do is spelled out in the servicing agreement with the investor.
It's just a New Orleans kind of thing. You don't understand at all. Results are not important. There will be no accountability. Its a free market kind of deal.
You know, if they weren't such screwups then they wouldn't need the help. Its okay. God (red, white & blue version) has a plan for them. So let them pull themselves up by their bootstraps and get going!
Nobody starves in America. There are jobs out there. It will build character.
They will never have a functioning net in place to catch these people. It is not going to happen. These neighborhoods, counties, states, cities, and people are just screwed.
Looking at the data, it strikes me that they're potentially not factoring in seasonality. Although seasonality would be more muted in the severely delinquent category, it would nonetheless be there. January is typically where seasonal delinquencies peak, followed by rapid run off through April. I suspect that they'll pick this up in their next report and suddenly proclaim how well loss mit is now working, attributable, of course, to the efforts of state AGs and Banking regulators.
That was absolutely not the impression I got from this report.
This isn't New Orleans. The SFPWG is not interested in just letting people drown. Give them that much.
They are over-invested in the idea that substantially more than 30% of currently delinquent borrowers can be "worked out" short of foreclosure. This is all about how the big meanie servicers aren't "doing enough" to "help" the "people." If it has anything to do with NO, it's piggybacking on people's resentment over the failure to do anything about that crisis, by insisting that this one can be "solved" if only servicers just modified more loans.
As usual, Jas, I'm not on your planet today. How you can read this report as anything other than simple-minded populism is beyond me.
OT: For all of you that thought you missed the boat, I have great news. Just heard on the radio that Ryland homes is still offering $0 down and $0 closing costs. Here is the ad
Looking at the data, it strikes me that they're potentially not factoring in seasonality.
They aren't even factoring in things like lien status or loan balance.
Per the tables, around 75% by count and 90% by balance of the loans in the survey universe are first liens only. The rest are either two liens serviced by the same servicer or second liens only. You do not do the same kind of loss mit things on second liens that you do on firsts. They don't take that into account.
They also make a big deal about the quarter or so of "closed" cases that were reinstatements--borrowers just brought the loans current out of their own funds, presumably, without the servicer needing to modify loan terms or set up a repayment plan. Per the numbers given, the average balance of all seriously delinquent loans is $158,591. The average balance of all "loss mit" loans is $153,292. The average balance of modified loans is $171,511. The average balance of reinstated loans is $122,049.
So the smallest loans with the smallest monthly payments are most likely to be reinstated? No! Really! And the largest loans with the largest monthly payments are most likely to need a modification? That's, what? Shocking?
If they had simply done some more analysis of the loans that were reinstated, they might not be so surprised that 25% can "close" that way.
But you can guarantee that by the end of the day we'll have another story about "walkaways," even though we have more actual data for "reinstaters."
Loss mitigation proposals do not close for a variety of reasons; one reason is the level of paperwork required to close a loan modification...
Classic. Paperwork/regulation is such a great scapegoat. It reminds me of a skit on SNL, "Unfrozen Cave-man Lawer". The crux of every argument was "but I'm a caveman and your modern world confuses me"
Even to a civilian like myself, the report (via WaPo's article) made no sense.
From where came the reports assumption that 10 out of 10 delinquent loans should be modified?
"Well, this guy isn't making any payments. To avoid foreclosure, let's put him in our no-payments product."
Considering that a vanilla fixed rate mortgage to someone w/ good credit is hard enough to close in 1 month, you're right, Tanta. How can we expect it to be easy to do loss mitigation in 1 month? To collect the information necessary to make a decent judgment in the matter -- it is hard to imagine that could happen in anything less than 3-6 months. Loss mitigation efforts must be quite expensive in themselves and that makes it increasingly unlikely that they could be applied. Substantial loss mitigation efforts may be a pipe dream.
So the smallest loans with the smallest monthly payments are most likely to be reinstated? No! Really! And the largest loans with the largest monthly payments are most likely to need a modification? That's, what? Shocking?
um, you're not trying very hard if you want someone to call you "subtle."
The phrase "unnecessary foreclosures" makes my head want to asplode.
It is only rivaled by this group's name, which - in and of itself - couldn't be any more absurd in my mind: "State Foreclosure Prevention Working Group" - what a joke! Like servicers need any more incentive to avoid foreclosures whenever possible! Why don't politicians just form one of these "groups" for everything that is unpopular yet inexorable:
"State Tornado Prevention Working Group"
"State Analog TV Broadcast Signal Preservation Group"
"Federal Group to Prevent Feline Hairball Expulsion"
Arguably, the assumption that "case by case" analysis by the(aggregators, underwriters, bond raters, bond purchasers etc) was unnecessary was what got us into this mess in the first place. The assumption that we can get out of this mess without is suspect. On the one hand, expedited forebearance porcedures might allow servicers time to figure out which loans mitigation makes sense for. OTOH, in a declining market, foreclosure now beats foreclosure later and might well beat a workout later.
Well, las, I'll agree that the whole idea of "loss mitigation" falls flat if it doesn't mean "work out as fast as you can."
This is not like the original closing. Every month that goes by, the borrower gets further and further behind. Fees and charges rack up besides past-due interest, taxes and insurance. You just can't dick around for months on end putting a plan in place, or else the balance due to be worked out is so large that the borrower can't pay it back and the investor can't decide to write it off, because it's just as much if not more than the foreclosure would cost.
The problem here is that you have to be able to make the "plans" long enough to work. A servicer should be able to put a repayment plan together in a month. But if the plan gives the borrower six months to make up the past-due amount, then the thing isn't "closed" in any useful metric until the six months is up.
This is just measuring performance by "starts" of workouts, not "closures" of workouts, as far as I can tell.
I came across this question I couldnt answer and it even seems on topic here. Apologies in advance if it has been covered before:
What is the impact of PMI on the servicer/bondholders incentive to workout a loan? I mean, if PMI will cover a large part, or the entire, loss on foreclosure, is the existence of PMI an incentive to say no to a workout or short sale?
(this presumes, of course, that the PMI company can and will pay a claim)
Granting for the moment the working group has good intentions (Tanta, you are generous here), the report simply cannot have been circulated to experienced loss mit pros, or it would have been modified out of recognition.
I mean, if PMI will cover a large part, or the entire, loss on foreclosure, is the existence of PMI an incentive to say no to a workout or short sale?
It would be if the MIs were that stupid. They are not.
All MI contracts with servicers force the servicers to follow the MI's loss mit policies, not just the investor's. If the borrower tendered, say, a good faith short sale offer that would have resulted in a reduction to the MI's claim, the MI can refuse to pay if the servicer blew it off.
In a lot of cases lately, you have to remember, the MI is going to pay the full claim amount anyway. The question is whether in a short sale or something the investor can get away with not having to take the "second tier" loss.
las: To collect the information necessary to make a decent judgment in the matter -- But of course to those touting various "automatic" restructuring proposals decent judgement is to be avoided. It might lead to the conclusion that these people agreed to payment schedules that they had no chance of making and that the best thing for them is foreclosure and bankrupcy.
Simple-minded economic populism -- yes indeed. More borrowers than lenders, therefore borrowers must be victims. And this is soooo early in the game. If you want to know where we'll be at halftime, read about the 1934 prosecutions of Samuel Insull (substitute Mozilo/Schwarzman) and Andrew Mellon (substitute Paulson/Rubin).
Tanta writes: "All MI contracts with servicers force the servicers to follow the MI's loss mit policies, not just the investor's. If the borrower tendered, say, a good faith short sale offer that would have resulted in a reduction to the MI's claim, the MI can refuse to pay if the servicer blew it off."
The question is whether in a short sale or something the investor can get away with not having to take the "second tier" loss.
You lost me. What's a "second tier" loss? (wrt MI)
It isn't exactly what I'd call competent. And of course it is political: I called it "grandstanding" and I meant that.
I say it's the anti-Katrina precisely because it isn't a governmental group "ignoring" the problem. They are in fact butting right into the problem.
They just don't seem to have a clue what the problem is or what the right solutions might be.
That's why I think Gretchen will just lap it up: it blames servicers for everything, offers half-assed "solutions," and plays into the idea that all this would go away if servicers just skipped over the details. Surely in that last sense it is classic Bush administration: long on rhetoric, short on any practical sense of how the world actually works.
What defense does a borrower have if he or she is foreclosed against after failure to perform under an undocumented, unsigned agreement?
Oh my, I know all about "lost" original, signed documents. If they exist anywhere (and one never knows), they are probably hiding out somewhere deep in storage inside a mountain. Have fun attempting to find/retrieve them. Could take some time.
In the meantime, more and more Americans no longer consider their mortgage to be a binding contract. Of course, they don't stop at stop-signs any longer either, but I digress.
Tanta, the phrase "unnecessary foreclosures" isn't as tendentious as you say. There are people who send their paperwork in, and the paperwork is lost. Nonprofit foreclosure counselors make sure the entire package is complete, and they send it in, and the servicer loses the file. Sure, there are cases where a borrower "forgets" to send check stubs and 1040s. But there are cases where the servicer just loses the entire folder.
Let's say a borrower mails or faxes a bunch of paperwork, but doesn't include pay stubs. The loss-mit department should be able to identify the problem within a couple of days of receiving the documents. It should be able to notify the borrower immediately. But that isn't happening. These two simple steps often take weeks. Meanwhile, the borrower falls further behind and foreclosure draws closer.
I picture loss mitigators sitting in cube farms with five-foot-high piles of papers on every available flat surface. Paperwork gets lost that way.
Don't you think that the loss-mit departments are exaggerating the incomplete-paperwork problem?
Paul suggests that there's a link between rampant fraud and incomplete paperwork sent to servicers: Borrowers don't want to incriminate themselves. Curious to hear more of your thoughts on that.
They just don't seem to have a clue what the problem is or what the right solutions might be.
Some of them don't even think there's a real problem. It's just a matter of confidence:
"The goal here, in the end, is to get confidence back, get optimism back, to get capital flowing again. And that's not going to happen until people see some positive action on these fronts. And that's what we're trying to do here. This is where the common ground is. What we tried to do is find the provisions we could agree on, set that up, get this ball moving, and get the economy heading in the right direction."
Sen. Chris Dodd, Banking Committee Chairman, Speaking to Andrea Seabrook of NPR on April 7, 2008 about the housing bill.
You lost me. What's a "second tier" loss? (wrt MI)
The MI does not pay any and all loss on a defaulted loan. It pays only the "first loss" up to the predetermined coverage amount. For instance, standard coverage on a 95% LTV loan is 30% of the loan amount. That means that the servicer totals up the actual loss taken (in FC, short sale, workout, whatever), and the MI pays either the whole loss if it is less than 30% of the original loan balance, or it pays the 30% and the investor eats the rest.
No MI would ever insure against all loss: that would indeed create a perverse incentive for the servicer to take the action that is easiest and cheapest for it, without caring how much the loss was for the MI. All policies have a coverage limit on them of some sort.
Does anyone really care about this issue, besides the mortgage insurers? Borrowers sure don't. Let 'em walk away and get a fresh start. What do they have to lose ?
I picture loss mitigators sitting in cube farms with five-foot-high piles of papers on every available flat surface. Paperwork gets lost that way.
I tend to picture loss mitigators who are over-monitored by management (since everyone is these days). Daily reports landing on desks regarding how long loans have been sitting in that mitigator's pipeline, date documents mailed to the borrower, date returned, etc. Any mitigator who was lucky enough to get a complete package returned would jump for joy and then process the damned thing to get it off the reports! God knows they have all these incomplete ones they can't finish up that they're being raked over the coals about.
A lot of them are actually given "incentive pay" for closed cases. I simply do not think the loss mit staff itself is tossing complete packages on a stack somewhere and blowing them off. If for no other reason, that just makes more work for them! Most of these packages probably contain modification or repayment agreements the borrower was supposed to sign. If you let those agreements get another 30 days old, the numbers change on you! Nobody wants to keep sending a mod out with updated balances each month.
I have no idea what kind of cartoonish perception of loss mit staff is common out there. Maybe they deserve some of this strange assumption of incompetence or slovenliness that they are getting. All I know is that it smacks of a contempt for working people sometimes that really gets on my nerves. Nobody likes these companies or their executives, but that's no reason to think that individual employees just lose shit all day.
I am only asking that we recognize that this is a process in which the dog will eat a lot of homework on both sides. It has always been that way. If the servicers are understaffed, they'll have a hard time keeping up with pestering people about it. But frankly, a lot of people just don't follow directions well in normal circumstances, and they follow directions a whole lot worse when they're under this kind of stress. That is not basis for the claim that "paperwork is the barrier." It is the basis for the claim that resolutions of defaulted loans are always messy and difficult even with a well-staffed servicer. The SFPWG is just barking up the wrong tree, I think.
Besides, what are the odds that house prices could drop 30%? Oh, wait...
Mortgage insurance is not about protecting the lender from any possible loss in default. It is about making the loss on default more or less equivalent to the loss on a 20% down loan with no MI.
That's why you don't have to pay MI if you put down 20%. The lender knows that it could still lose money if you default, but it concludes you are less likely to do so because you put so much down. If you put down less than 20%, you pay for MI, because you are more likely to default.
Some of them don't even think there's a real problem. It's just a matter of confidence:
"The goal here, in the end, is to get confidence back, get optimism back, to get capital flowing again. And that's not going to happen until people see some positive action on these fronts. And that's what we're trying to do here. This is where the common ground is. What we tried to do is find the provisions we could agree on, set that up, get this ball moving, and get the economy heading in the right direction."
Excessive confidence where confidence is not warranted is probably at the heart of all our problems.
That'll be a different matter when confidence gets excessively low and the economy is so deflated that more bubbles are no longer a realistic outcome. But we're a long long way from there.
We should be encouraging people to have more judgement in financial matters, not less - that's key to being creditworthy.
Once we get there then we can start talking about restoring confidence.
Paul suggests that there's a link between rampant fraud and incomplete paperwork sent to servicers: Borrowers don't want to incriminate themselves. Curious to hear more of your thoughts on that.
In some, probably most cases, yes, that's exactly what is happening.
In other cases, I suspect that the borrower originally told the servicer that there was some "hardship" going on, like "I lost my job." If that didn't happen to be true, then the borrower doesn't want to part with his last month's bank statement that shows a direct deposit from the job he never lost. It happens.
Or it is just that the servicer is, as they usually do, requiring at least a token payment by the borrower. Sometimes the one "document" that is missing from these packages is the "check." Or the check doesn't clear.
I come back to the same problem I often have: a lot of these people should never have been put into the loan in the first place, because their past history showed they have no particular ability to manage money or debt, and their purchase of this home is clearly impulsive and too much of stretch for anyone who can do realistic budgeting.
Yet suddenly we expect them to turn into a different kind of person during a workout negotiation. Well, the Big Secret of subprime mortgage servicing is they don't. That's why servicers charge more to service these loans, and that's why every time they apply for a new loan and you ask them about the mess on their credit reports, they tell you it was all a big misunderstanding and a creditor who never applied their payments properly.
The fact that things are moving slowly with regard to servicer response wouldn't have ANYTHING to do with the fact that servicers, per PSAs in most cases, get to keep your average monthly late fees as additional servicing compensation.
You'd think that, since in many cases any they also get to keep modification fees as additional servicing compensation (again per the individual PSA terms) servicers would be bending over backwards trying to get as many mods done as possible.
It couldn't be that it's more profitable for a servicer to keep a borrower in some form of default for as long as possible would it? Why not collect as many monthly late fees as possible and THEN collect the modification fee? That's just sprinkles on top of the icing...
Thanks, Tanta. The picture is getting clearer -- figuratively and literally (wink wink to the friend who sent a pic of a loss-mit office with nary a tall stack of paper in sight)!
Paul suggests that there's a link between rampant fraud and incomplete paperwork sent to servicers.
Certainly, in the not-too-uncommon case where a borrower lied about thier income for a chance to jump aboard the perceived housing gravy train, there is little reason to "prove they lied". Moreover - to even bother to stay in a home they paid nothing out of pocket for, is now worth less than they owe, and to top if off - they could just go rent somewhere for less per month. What will become of them if they choose not to incriminate themselves? Their credit's ruined? - pshaw - it was crap to begin with. They basically get evicted (an experience which for people with 540 FICOs, is about as unusual and painful an experience as...um...a Tuesday).
I feel much far more sympathy for the couple PJ cited in Chicago who cannot buy with their 5% downpayment thanks to the aftermath.
Here in Miami-Dade and Broward County, I know at least 2 people who are 40% underwater. Maybe more, but at least that much. Unless the lender is willing to cut that much off the loan, these people cannot make the payments.
In addition to the loss in value, one lost his job, and the other lost much of his business--he's an appraiser.
So the lender would have to chop over $100,000 off the loan to have a hope of getting any type of response from the borrower. They will lose at least that much, if not more after foreclosure, but they are not up to facing this degree of loss, yet.
Also, I simplified it; 2nd mtges are involved too.
I honestly think that cram down legislation would actually lose the lenders the least amount of money, but they still don't want to acknowledge their losses to be as huge as they are.
And remember, none of these people care anything for the lenders; they are pandering to the borrowers, and it would just be too hard to learn anything about the lending industries practices.
It couldn't be that it's more profitable for a servicer to keep a borrower in some form of default for as long as possible would it? Why not collect as many monthly late fees as possible and THEN collect the modification fee?
wouldn't that, in effect, intentionally be increasing the probability that the modification will fail?
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First, let me admit that Tanta's remark was correct and I just reacted to my revulsion towards simple-minded populism practiced by our govt officials. I readily admit to my mistakes when I am persuaded.
I would appreciate if Tanta can answer this in some detail:
Who are the primary beneficiaries of "Foreclosure Prevention?"
In my view it really doesn't help the "homeowners." Real homeowners cannot be foreclosed upon! BTW, I am all for private parties renegotiating terms (workouts) that are mutually beneficial and I am in agreement with Tantas commentaries on the subject. Also, I think that preventing a foreclosure today might be worse for one or both parties sometime in the future unless one assumes rosy scenarios for the future. Foreclosures are necessary part of the system and the process of home financing.
Here in Miami-Dade and Broward County, I know at least 2 people who are 40% underwater. Maybe more, but at least that much. Unless the lender is willing to cut that much off the loan, these people cannot make the payments.
You lost me here--how does equity in the house relate to ability (as opposed to willingness) to make the payments? It seems to me that the ability to make payments is a function of (1) monthly income and (2) the monthly payment....
What I'd like to know is how much it will cost to just work all of this out. Do these workouts involve a massive amount of man-hours, paperwork, lawyer fees, and God knows what else?
If so, maybe it really is cheaper to just say "screw it" and restructure these things without detailed analysis. Sure it's a roll of the dice, but maybe that's the best we can hope for?
En Fuego: If you have access to a time machine and can go back about five years or so, I suspect that post will be enough to land you a senior management position at a servicer.
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Tanta: "I believe this is the first time I have ever been accused of delicacy."
That would ruin our reputations! Its like I read this article "Clueless in America" and my reaction is that that is a euphemism. The truth would be Born-and-Bred Dopes In America. It is a systematic process.
En Fuego, the problem with just "restructuring" without any analysis is that it just kicks the can down the road a few feet.
What do you do when the first payment due under the "restructured" terms is late? Do it again? Or can foreclosure be considered "necessary" at this point?
We're getting perilously close to simply declaring across-the-board debt forgiveness. I can see the arguments for doing that, but I can't see deciding to bring on that level of economic turmoil just because some mortgage servicers are backed up.
It's like the old joke: what did the Visigoth say to his demoralized kid? "Don't give up, son. Rome wasn't sacked in a day."
What you wish to consider here - and you have company - is gov't intervention in private contracts.
There's precedent, of course, but that action might have some bearing on the future availability of credit for home purchases. In your world, every loan will become portfolio and its terms subject to alteration by fiat.
Yalt said You lost me here--how does equity in the house relate to ability (as opposed to willingness) to make the payments? Duh. Without any equity, how are they supposed to get a HELOC to make their mortgage payments with?
Tanta - If you had an MBA from Harvard or some other prestigious school, you would know the following: You don't have to understand the details of any business or business process in order to be able to run it. You just have to marshall support and resources enough to begin to change it, then move along quickly before any measurable results come your way. Let me dumb it down for you even further: Scapegoat, infusion of cash, move along. Repeat.
[M]ore and more Americans no longer consider their mortgage to be a binding contract.
I am SOO sick of this meme. The contract was "You make the payments OR we take the house." Ex-post-facto whining about how the counterparty was never supposed to choose option B even though it's explicitly outlined in the contract gets old really fast. Lenders who wanted to make option B less palatable were free to demand more borrowers' skin in the game.
Holden Lewis - Look, if you wait until the last minute or send in an incomplete package, that sucker is going to get dumped. First, when someone "forgets" to send in their pay stubs, it is very likely that there's a good reason for it. It's the pay stubs or electronic deposit record that are the easiest of the paperwork to provide, you know? If you get very late package that's incomplete, it's not even worth pursuing.
You have to understand that loss mitigation is about mitigating losses, and that most of the manpower and money is going to be exerted on the cases with the best chances of mitigation. It is the borrower who has defaulted. The servicer/lienholder has no obligation to throw their good money after bad. To actually mitigate losses you have to move very quickly on the ones that look doable and avoid the ones who are jerking you around. It's a form of triage.
Another thing you should know is that borrowers will sometimes do this last moment hoping to delay the foreclosure action - to keep it in Loss Mit for another month or so. Nor are they always honest with the credit counselor. It's perfectly possible that the credit counselor could send in a package that he or she thought was complete, only to have the Loss Mit dept discover it wasn't. Maybe the credit report showed some accounts not listed.... Maybe even another mortgage not listed! You know what you'd do? You'd put that sucker down and move to the next one. Of course legally you should send an adverse action, but hey.
It's too bad that Casey Serin's website still isn't up, because he demonstrated the pattern pretty well. Foreclosure would be scheduled on Wednesday, and he'd send off the package maybe Monday or the Friday before, then he'd badger the lender about stopping the action. He did get several of his lenders to postpone action, btw. If you are not careful, you can spend a great deal of time and money on people for whom there is no chance. Then your Loss Mitigation group becomes your Loss Magnification group. If you can't keep it out of foreclosure, you need to get it there as quickly as possible.
There is a federal law which addresses information security issues about leaving paperwork with account numbers linked to people's names, addresses, telephone numbers and the like lying around where, say, the cleaning service can access them. If any servicer did have cubicles with stacks of these files lying around in the open day after day, they'd be nailed on their Info Sec audit.
Don't get me wrong, I can definitely see "just restructuring" as kicking the can down the road.
My concern is that our choice is going to come down to doing nothing ( or very little because the servicers can't handle the workload ) and doing something less than ideal. Obviously the ideal solution would be to "do the right thing" and perform the required due diligence that was never done in the first place.
But is it realistic to expect that will happen? Or, perhaps the more relevant question is will happen quickly enough to make a difference? I honestly don't know the answer. But as Tanta pointed out, if you wait too long to get a deal in place then the deal probably won't happen.
Someone needs to figure out the expected costs of "quick and dirty" versus "doing the right thing". If the costs and expected losses of the former are lower than the latter then maybe "screw it" will work? Then again, "quick and dirty" got us into this mess so it's hard to see how the same strategy will get us out.
"I am SOO sick of this meme. The contract was "You make the payments OR we take the house.""
My Note reads, "In return for a loan that I have received, I promise to pay $$, plus interest, to the order of the Lender." The only time the word "or" appears anywhere in the Note is when I agree to make all payments using cash, check, OR money order. I've read the whole thing, and that is the one and only choice I agreed to when I signed the Note. I also signed a mortgage, which grants the Lender the right to various forms of recourse should I break the covenants I made in the Note. But the Note gives me no options (aside from the right to prepay, and the aformentioned choice of tender).
Can you tell me how your contract differs? Or do you simply assume the Note means what you wish it meant?
lawyerliz:
"I honestly think that cram down legislation would actually lose the lenders the least amount of money, but they still don't want to acknowledge their losses to be as huge as they are."
maybe i read too much of mike shedlock, but i suspect it is less about not 'wanting' to and more about they 'can't'.
if the banks are the ultimate owners of these loans, then each time they take a loss it would be a hit to their capital reserves, correct?
that may well turn out to render maxedoutmamma's wisdom of "If you can't keep it out of foreclosure, you need to get it there as quickly as possible." upside down.
If the people living there aren't destroying the property, and they are mowing the lawn, it might be the best scenario for the moment.
Oh - and Holden, one final comment regarding the credit counselors who think they are sending in complete packages and the Loss Mit people are just randomly flushing them:
Every servicer, whether the servicer is servicing their own portfolio or servicing someone else's, is operating under a series of guidelines as to how many times you can do what within a certain period. So if someone was late on payment three, caught that up by payment seven, then skipped payment eight, promised this that and the other, didn't perform, caught up on payment 13 (tax refund), is behind again by two months on payment 20 - the credit counselor may not realize that the borrower has this history which now disqualifies the borrower from further efforts.
A lot of times this happens, and the credit counselor is the last ditch effort to forestall foreclosure, and often the credit counselor may not get the whole story. The moment the servicer looks at the history he or she realizes it's no go.
Actually the joke that came to mind involved "Huge tracts of land!"
This will end when we offer all of the surviving mortgage holders a nice 50% haircut in their loan amount, or we have a nice 75% rise in the average wage.
My concern is that our choice is going to come down to doing nothing ( or very little because the servicers can't handle the workload ) and doing something less than ideal.
Doing nothing? Nothing????
This report shows that around 30% of the seriously delinquent loans are in process for loss mit. And cases are getting closed.
I don't know how much experience other people have had with a nonperforming loan portfolio, but getting 30% of them worked out short of foreclosure isn't exactly nothin'. And this is just going to get into the same crap we've had to deal with on the delinquency stats, so let me remind everyone, again, that this is a "dynamic" pipeline. If 30% of the loans currently delinquent are in loss mit, and 30% were in loss mit back in October, most of them ARE NOT THE SAME LOANS. The issue here is that the rate of new delinquency is keeping up with the rate of "closing" workouts.
I would frankly be shocked if even 50% of this particular pool of delinquent mortgages could reasonably be worked out. If so, though, we're doing 3/5 of what we need to be doing, not 0/5.
It never helps to accept the opposing side's straw man.
When I decided to sell my home and rent last July, I went to view some for-sale townhomes in a new development where one was advertised for rent, and found that several more were also for rent, and that several of those for sale were vacant and clearly owned by speculators who'd bought them to flip.
So since then I've been monitoring sales on that street through the Chicago Sun-Times' portal to an actual-sales database (which gets recorded usually about two months after closing). There I've seen that, although there's not a huge difference in size and quality between those townhomes, the range of selling price had been between the low 400s to the mid-600s, and one of those vacant in July was recorded in mid-October as sold at 600+ (closed in August?). That home's now on the MLS as an REO in the mid-300s, along with several others that had sold somewhat earlier in the mid-600s.
Interestingly, most of the mid-600s sales had been to buyers with names readily identifiable by form as "Xxxxxian" (where "Xxxxxia" is a certain Baltic nation).
Might this be a case of organized fraud by a gang that's skipped back to Eastern Europe? Or is it a case of a bunch of naive immigrants deciding to live/invest in the same area (one name was on two purchases)?
It appears that at present at least half these townhomes are REO (one apparently stripped of appliances).
A couple of points:
- Foreclosure is a loss mitigation tactic.
- Servicers are working for the investors in the mortgage pools, under those terms they are supposed to choose the loss mit option with the lesser loss to the trust.
- Borrowers are notorious for not following direction or sending in the workout payments as directed. I am not sure of percentages, but more than half of workouts on subprime loans FAIL, and foreclosure resumes. Ultimately, this increases the loss to the investor.
- Some servicers are starting "unsolicited modifications" where they send the mod paperwork to the borrower early on in delinquency and all the borrower has to do is follow directions and send it back. Most of them don't. Why? I refer to what PJ said about fraud.
My Note reads, "In return for a loan that I have received, I promise ..." ... I also signed a mortgage...
The original poster spoke of mortgages, not notes. Be that as it may, I can phrase it a different way: In the combined text of your note and your mortgage, what percentage of the verbiage is dedicated to what happens in the event of a breach, as compared to what happens in the event of mutual performance? Nearly the whole thing is composed of definitions of breaches, penalties and remedies. And yet people pretend that nobody contemplated a breach! The whole point of a contract is to clarify the parties' positions in the event of a breach. I don't want to get all Biblical on you, but in the case of lending against the value of land, there really isn't much new under the sun. Heck, what do you think a "non-recourse state" is? That's a place where not only did the two counterparties contemplate the possibility of breach, but the government did as well. Historically, the value lent was less than the value pledged, for reasons which were obvious to nearly everyone up until very recently. Don't try to convince me that stuff which can be read in case law stretching back centuries is inconceivable.
I've thought for a while that Guantanamo Bay might be recycled as a detention facility for leaders of mortgage brokerages, conduit entities and securitization operations. Maybe, in the spirit of equal treatment, that should be accompanied by mobile waterboarding units to elicit the truth about assets and income from delinquent borrowers. Although not specifically addressed in the hand wringing report that you are all discussing, I'm sure these and other possible tactics are under private consideration among the Sovereign Wealth Funds operators who are going to end up owning this place, at the rate things are going.
Of course a breach is conceivable. But please note that it is called a breach, not an option. The Note, which is itself a contract, contains no options. And my state (MA) is a recourse state. I have the "option" to prepay, or to use various tenders. I don't have the option to not pay. I'm going by the specific language of the contract. I would not be willing to bet that a judge would ignore that language.
My Note reads, "In return for a loan that I have received, I promise...
For those who continue to be outraged about this widespread breach of promise, apparently unique to modern times, it may pay to contemplate why the interest rate on a note secured by a mortgage has been considerably less than on an unsecured note for, um, centuries.
a lot of these people should never have been put into the loan in the first place
household income $5,000/mo; auto loan $450/mo; placed in Flex100, $200 purchase price, 100% LTV
evening before closing, lender informs settlement agent of clerical error, monthly MI premium increased to $750/month, DTI 65%, no reserves;
first time homebuyer with 3 young kids, all his possessions in a moving van, having given up his rental, signs on the dotted line.
Contacted MI carrier & servicer, requested they consider a loan modification or faciliate the borrower's ability to refinance into an FHA loan by re-applying $750 MI payments to principal to lower the payoff. Fannie's loss mitigation department: "We don't allow forgiveness of debt." Servicer stated borrower would not qualify for a refinance and declined a loan modification. MI carrier willing to a pay claim. Servicer unwilling to apply the claim. Quote from the servicer: "We don't correct for errors made at origination." Foreclosure is an awfully expensive means of correcting for origination errors.
I'd like to know how many borrowers could have qualified for FHA loans or [State] Housing Finance Agency loans but were placed in Alt-A products.
Sandy said: "I'd like to know how many borrowers could have qualified for FHA loans or [State] Housing Finance Agency loans but were placed in Alt-A products."
It was astonishingly common. I can't give you a number but, trust me, it would be a very large share.
Regarding Chicago *ian foreclosures. The people I have spoke to representing short-sellers told me that a lot of the SS clients in Chicagoland were truckers. Five years ago they were taking home six figure incomes and today are taking home a third of that. There are many *ian folk in the trucking business.
household income $5,000/mo; auto loan $450/mo; placed in Flex100, $200 purchase price, 100% LTV
evening before closing, lender informs settlement agent of clerical error, monthly MI premium increased to $750
$750/month MI premium? On a $200,000 loan? 450 bps premium?
I certainly can't remember the last time I saw a premium like that. Not with a borrower who can qualify for Flex100.
That's really sad. All the *ians I know personally are people of the highest quality. I'd hoped the people taking those losses weren't like them. Trucking is damned hard work -- hardly anyone earns their money more.
dryfly's "I think these servicers & mortgage originators should merge" and Allen C's "I suspect the good ones are earning their salaries" -->
Per Tanta's many past missives on this subject, part of the problem with the few servicers around to perform appropriate mods is that the business model was to fire the local/regional servicers ( because we'll never see a giant slate of refi's, you silly person, house prices always go up! ) and pocket the differential in servicing fee paid by the contract with the MBS holder.
"The Check Is In The Mail" is so 1970's. Now the term is "The Computer Ate The Check" or "I Clicked on Send, so I don't know why you haven't received it yet".
I asked a real estate attorney, not the one that closed this loan, if he had ever been tempted to ask his client to step out of the room and take a walk around the block and think through whether to go forward with the transaction. The attorney said it would be professional suicide to do so. The borrower's deposit on the house was $1,000.
Fannie's loss mitigation department informed me that since the borrower signed a contract the terms including the mi premium could not be renegotiated and that Fannie had complete confidence in their partners' ability to provide the appropriate assistance, what a crock.
I believe the MI carriers no longer insure the Flex100 at any price.
"I asked a real estate attorney, not the one that closed this loan, if he had ever been tempted to ask his client to step out of the room and take a walk around the block and think through whether to go forward with the transaction. The attorney said it would be professional suicide to do so."
At least in MA, the lawyer at closing is representing the bank, not the lender.
I did PAY for the lawyer at closing, yes, as part of the closing costs. I also asked him who he was representing, and was told he represented the lender.
All I can say is that if the closing attorney represents me, the lender, then by God I'd want him to say, "WHAT? You're trying to increase this guy's MI to 450 bps (I would have expected less than half that) the day before closing? Are you insane? Do you want to get accused of predatory lending? As the attorney representing you I suggest you ask yourself what the bloody hell you think you are doing here."
This is an example of a situation in which NOBODY benefits. Per Sandy, the only party who might--the MI company who is getting that exorbitant premium--is the only one volunteering to pay to fix it! That tells me that the MI company has no interest in trying to collect this premium from this borrower.
The lender didn't benefit from it. The investor doesn't benefit from it. The settlement agent didn't benefit from it. Most assuredly the borrower didn't.
But what, since some dipshit called to "correct" the closing instructions the day before, the closing attorney can't say squat to the lender about it?
It doesn't sound to me like anyone got represented.
I did some reading and apparently that settlement lawyer is a busy beaver and can represent nearly everyone at the same time. In most states. Of course the buyer gets to pay for this.
Well, Joy, you also paid an "up front" one-time premium that was in your closing costs. The "monthly" FHA premium is thus smaller than a conventional MI loan, because on the conventional loans there isn't that upfront part.
I'm having a hard time believing that anyone could get charged more than about 150 bps on a Flex100. (That's a Fannie Mae program with pretty high credit requirements in exchange for the high LTV). That would about $250 a month.
The buyer may select the atty in certain states but they represent the lender. This presents a problem for lenders because any dipshit can close the loan (or should I say present and explain the documents that their assitants create).
Last time I spoke to the representative he was working on short-selling over a dozen Florida properties for a group of doctors that couldn't carry them any longer.
Many people with good intentions are caught up in this mess...but many more people that took advantage of greedy lenders/investors.
Shnaps, she said it was 100% LTV (Fannie Mae Flex100), and I assumed at least 35% coverage. Even if that could get through DU with a 620 FICO, I don't see how anyone could possibly get that kind of MI.
Mortgage loan modification is a complicated, labor-intensive process that must be done one loan at a time.
Lenders do loan modifications to benefit THEM, not borrowers. Hence the term "loss mitigation." Their loss mitigation, not yours.
State regulators who should know all this do not know all this. Or perhaps they are just being demagogues, striking a pose as the consumer's friend. (Would not be the first time...)
The loan was approved as a 30-YR Expanded Approval III Flex with 35% MI coverage. (Perhaps the underwriter pulled the approval and placed him in a different product. I don't know.)
Short Refi's: My question to you, why does Fannie absolutely refuse to authorize an MI carrier to apply a claim that would allow a borrower to refinance into a more appropriate product? Why are servicers dead set against approaching MI carriers when the borrower first initiates contact pleading for assistance? The claim requested (2.25%) would be insignificant when compared to the loss incurred by foreclosure. The refi into an FHA would have dropped his monthly PITI $900/month.
Why are servicers so insistent that borrowers be technically in default before they will provide assistance. This was a full doc loan that should not have been approved and would not be approved in today's market given the changes to guidelines.
It's a shame the automated underwriting systems couldn't flag loans as being eligible for more affordable loan products.
It seems that many people who should not be homeowners are. It also seems that what was once looked at as a hard earned privledge is now considered a vested right.
It also seems a waste that the questionable loans cannot be somehow renegotiated to terms that both borrower and lenders can live with.
It seems that the power will be granted to the Bankruptcy Courts to force negotiated terms. There is precedent in law for this. The 80's saw a similar situation with American Farmers who were in a similar bind as collateral values fell and income from falling ag prices fell, the loans were totally restructured by the Bankruptcy Courts. The existence of government powers to force renegotiation, encouraged the lenders and borrowers to bypass the Bankruptcy Court system as a clear outcomes were well... very clear to all parties.
After the government laid down the law, people followed it. The law is in the process of being laid down currently and I expect an outcome similar to what happened in the 80's.
Ethan, Suburbs, near-in. I won't say which one, as individuals' names appear in the Sun-Times data, and I do not want to risk falsely accusing a hard-working *ian who was suckered by the housing boom.
1st!
It was very delicate of you not to mention anyone like Gretchen Morgenstern by name.
It was very delicate of you not to mention anyone like Gretchen Morgenstern by name
I believe this is the first time I have ever been accused of delicacy. Thanks, Andrew!
(I'm still waiting for "subtle.")
"really, my check is in the mail!!"
Sorry for the naive question, but how do servicers and borrowers work out agreements on non-performing loans, when investors own the note?
--
I wish that govts at all levels will stay out of it and let private parties renegotiate to their mutual benefits. Is this so hard or simplistic?
I know that as a good American you will keep denying, Tanta, but the role being played by the USG and Fed (various interventions) are primarily to support the Crooks and NOT to help people. OK, people make bad decisions and businesses make bad decisions and problems need to be resolved. Govt should only be their to enforce contracts and existing rules at the time of the contracts.
The whole mortgage mess is because of widespread corruption in America -- American People, Businesses, USG, Fed, etc. And the corrupt people proposing solutions. For whose benefits?
Jas
Tanta,it is an election year,so of course this reeks of political grandstanding.This report was served up hot and steaming,exactly as ordered...it may not be all that nourishing,but it is certainly organic,biodegradable and high in fiber... the flies add a bit of protein.
We all know how this is going to end. Everyone will keep talking about the problem and possible solutions until everyone affected has cratered, thereby making all of the discussion moot.
It's one of the "innovative" ways we solve problems in America now.
but how do servicers and borrowers work out agreements on non-performing loans, when investors own the note?
The same way your attorney works out a settlement with the insurance company on your behalf.
The servicer is the investor's "hired hands." That is what the term means. The servicer acts as the investor's agent in performing a whole slew of necessary tasks, such as collecting payments, foreclosing, and working out. What the servicer can and can't do is spelled out in the servicing agreement with the investor.
It's just a New Orleans kind of thing. You don't understand at all. Results are not important. There will be no accountability. Its a free market kind of deal.
You know, if they weren't such screwups then they wouldn't need the help. Its okay. God (red, white & blue version) has a plan for them. So let them pull themselves up by their bootstraps and get going!
Nobody starves in America. There are jobs out there. It will build character.
They will never have a functioning net in place to catch these people. It is not going to happen. These neighborhoods, counties, states, cities, and people are just screwed.
Tanta, Perhaps you should send a copy of your last newsletter to the State Foreclosure Prevention Working Group?
Looking at the data, it strikes me that they're potentially not factoring in seasonality. Although seasonality would be more muted in the severely delinquent category, it would nonetheless be there. January is typically where seasonal delinquencies peak, followed by rapid run off through April. I suspect that they'll pick this up in their next report and suddenly proclaim how well loss mit is now working, attributable, of course, to the efforts of state AGs and Banking regulators.
"State Foreclosure Prevention Working Group"
Is that run by the same people who run the Iraq Study Group?
It's just a New Orleans kind of thing.
That was absolutely not the impression I got from this report.
This isn't New Orleans. The SFPWG is not interested in just letting people drown. Give them that much.
They are over-invested in the idea that substantially more than 30% of currently delinquent borrowers can be "worked out" short of foreclosure. This is all about how the big meanie servicers aren't "doing enough" to "help" the "people." If it has anything to do with NO, it's piggybacking on people's resentment over the failure to do anything about that crisis, by insisting that this one can be "solved" if only servicers just modified more loans.
As usual, Jas, I'm not on your planet today. How you can read this report as anything other than simple-minded populism is beyond me.
We are all stated now!
Good explanation of yet another developing mess, Tanta.
Either this post wasn't very nerdy, or I'm menching up on nerdiness. Understood it from start to finish.
OT: For all of you that thought you missed the boat, I have great news. Just heard on the radio that Ryland homes is still offering $0 down and $0 closing costs. Here is the ad
Las Vegas New Homes - Find Home Builders in Las Vegas, Nevada - Ryland
Now who would buy that note?
Tanta, you'll just have to forgive Jas. His filters got clogged a long time ago and no one bothered to clean them.
Looking at the data, it strikes me that they're potentially not factoring in seasonality.
They aren't even factoring in things like lien status or loan balance.
Per the tables, around 75% by count and 90% by balance of the loans in the survey universe are first liens only. The rest are either two liens serviced by the same servicer or second liens only. You do not do the same kind of loss mit things on second liens that you do on firsts. They don't take that into account.
They also make a big deal about the quarter or so of "closed" cases that were reinstatements--borrowers just brought the loans current out of their own funds, presumably, without the servicer needing to modify loan terms or set up a repayment plan. Per the numbers given, the average balance of all seriously delinquent loans is $158,591. The average balance of all "loss mit" loans is $153,292. The average balance of modified loans is $171,511. The average balance of reinstated loans is $122,049.
So the smallest loans with the smallest monthly payments are most likely to be reinstated? No! Really! And the largest loans with the largest monthly payments are most likely to need a modification? That's, what? Shocking?
If they had simply done some more analysis of the loans that were reinstated, they might not be so surprised that 25% can "close" that way.
But you can guarantee that by the end of the day we'll have another story about "walkaways," even though we have more actual data for "reinstaters."
Loss mitigation proposals do not close for a variety of reasons; one reason is the level of paperwork required to close a loan modification...
Classic. Paperwork/regulation is such a great scapegoat. It reminds me of a skit on SNL, "Unfrozen Cave-man Lawer". The crux of every argument was "but I'm a caveman and your modern world confuses me"
Google Videos Error
Tanta I love your posts.
Even to a civilian like myself, the report (via WaPo's article) made no sense.
From where came the reports assumption that 10 out of 10 delinquent loans should be modified?
"Well, this guy isn't making any payments. To avoid foreclosure, let's put him in our no-payments product."
Tanta said: "As usual, Jas, I'm not on your planet today. How you can read this report as anything other than simple-minded populism is beyond me."
Well, I'm on yet another planet since this whole blog and a considerable number of postings smack of simple-minded populism.
Sebastian
Considering that a vanilla fixed rate mortgage to someone w/ good credit is hard enough to close in 1 month, you're right, Tanta. How can we expect it to be easy to do loss mitigation in 1 month? To collect the information necessary to make a decent judgment in the matter -- it is hard to imagine that could happen in anything less than 3-6 months. Loss mitigation efforts must be quite expensive in themselves and that makes it increasingly unlikely that they could be applied. Substantial loss mitigation efforts may be a pipe dream.
Nice troll Sebastia
So the smallest loans with the smallest monthly payments are most likely to be reinstated? No! Really! And the largest loans with the largest monthly payments are most likely to need a modification? That's, what? Shocking?
um, you're not trying very hard if you want someone to call you "subtle."
The phrase "unnecessary foreclosures" makes my head want to asplode.
It is only rivaled by this group's name, which - in and of itself - couldn't be any more absurd in my mind: "State Foreclosure Prevention Working Group" - what a joke! Like servicers need any more incentive to avoid foreclosures whenever possible! Why don't politicians just form one of these "groups" for everything that is unpopular yet inexorable:
"State Tornado Prevention Working Group"
"State Analog TV Broadcast Signal Preservation Group"
"Federal Group to Prevent Feline Hairball Expulsion"
MoT - Enjoyed the fine print on Ryland's "low price guarantee." What a deal.
Arguably, the assumption that "case by case" analysis by the(aggregators, underwriters, bond raters, bond purchasers etc) was unnecessary was what got us into this mess in the first place. The assumption that we can get out of this mess without is suspect. On the one hand, expedited forebearance porcedures might allow servicers time to figure out which loans mitigation makes sense for. OTOH, in a declining market, foreclosure now beats foreclosure later and might well beat a workout later.
Well, las, I'll agree that the whole idea of "loss mitigation" falls flat if it doesn't mean "work out as fast as you can."
This is not like the original closing. Every month that goes by, the borrower gets further and further behind. Fees and charges rack up besides past-due interest, taxes and insurance. You just can't dick around for months on end putting a plan in place, or else the balance due to be worked out is so large that the borrower can't pay it back and the investor can't decide to write it off, because it's just as much if not more than the foreclosure would cost.
The problem here is that you have to be able to make the "plans" long enough to work. A servicer should be able to put a repayment plan together in a month. But if the plan gives the borrower six months to make up the past-due amount, then the thing isn't "closed" in any useful metric until the six months is up.
This is just measuring performance by "starts" of workouts, not "closures" of workouts, as far as I can tell.
I came across this question I couldnt answer and it even seems on topic here. Apologies in advance if it has been covered before:
What is the impact of PMI on the servicer/bondholders incentive to workout a loan? I mean, if PMI will cover a large part, or the entire, loss on foreclosure, is the existence of PMI an incentive to say no to a workout or short sale?
(this presumes, of course, that the PMI company can and will pay a claim)
Granting for the moment the working group has good intentions (Tanta, you are generous here), the report simply cannot have been circulated to experienced loss mit pros, or it would have been modified out of recognition.
Which is how I come to question those intentions.
This is Katrina redux.
What is the impact of PMI on the servicer/bondholders incentive to workout a loan?
I'm interested in hearing a take on this as well.
I mean, if PMI will cover a large part, or the entire, loss on foreclosure, is the existence of PMI an incentive to say no to a workout or short sale?
It would be if the MIs were that stupid. They are not.
All MI contracts with servicers force the servicers to follow the MI's loss mit policies, not just the investor's. If the borrower tendered, say, a good faith short sale offer that would have resulted in a reduction to the MI's claim, the MI can refuse to pay if the servicer blew it off.
In a lot of cases lately, you have to remember, the MI is going to pay the full claim amount anyway. The question is whether in a short sale or something the investor can get away with not having to take the "second tier" loss.
w writes:
Tanta, Perhaps you should send a copy of your last newsletter to the State Foreclosure Prevention Working Group?
They wouldn't read it.
las: To collect the information necessary to make a decent judgment in the matter -- But of course to those touting various "automatic" restructuring proposals decent judgement is to be avoided. It might lead to the conclusion that these people agreed to payment schedules that they had no chance of making and that the best thing for them is foreclosure and bankrupcy.
Simple-minded economic populism -- yes indeed. More borrowers than lenders, therefore borrowers must be victims. And this is soooo early in the game. If you want to know where we'll be at halftime, read about the 1934 prosecutions of Samuel Insull (substitute Mozilo/Schwarzman) and Andrew Mellon (substitute Paulson/Rubin).
Rough justice: get used to it.
Tanta writes: "All MI contracts with servicers force the servicers to follow the MI's loss mit policies, not just the investor's. If the borrower tendered, say, a good faith short sale offer that would have resulted in a reduction to the MI's claim, the MI can refuse to pay if the servicer blew it off."
I see lawyers, lawyers everywhere!!!
Sebastian posted this gem at the big picture:
"I'm "afraid" of the current rally, but I'm 75% long anyway, because I've got good intellectual reason to trust it." link
The question is whether in a short sale or something the investor can get away with not having to take the "second tier" loss.
You lost me. What's a "second tier" loss? (wrt MI)
This is Katrina redux.
It isn't exactly what I'd call competent. And of course it is political: I called it "grandstanding" and I meant that.
I say it's the anti-Katrina precisely because it isn't a governmental group "ignoring" the problem. They are in fact butting right into the problem.
They just don't seem to have a clue what the problem is or what the right solutions might be.
That's why I think Gretchen will just lap it up: it blames servicers for everything, offers half-assed "solutions," and plays into the idea that all this would go away if servicers just skipped over the details. Surely in that last sense it is classic Bush administration: long on rhetoric, short on any practical sense of how the world actually works.
What defense does a borrower have if he or she is foreclosed against after failure to perform under an undocumented, unsigned agreement?
Oh my, I know all about "lost" original, signed documents. If they exist anywhere (and one never knows), they are probably hiding out somewhere deep in storage inside a mountain. Have fun attempting to find/retrieve them. Could take some time.
In the meantime, more and more Americans no longer consider their mortgage to be a binding contract. Of course, they don't stop at stop-signs any longer either, but I digress.
Tanta: "I am not a knee-jerk defender of the mortgage servicing industry by any measure."
Didn't we establish a month or so ago you were a shill for Countrywide?
"Surely in that last sense it is classic Bush administration: long on rhetoric, short on any practical sense of how the world actually works."
Now that we've gotten that out of the way, Eva Braun's Rolleiflex is for sale.
Tanta, the phrase "unnecessary foreclosures" isn't as tendentious as you say. There are people who send their paperwork in, and the paperwork is lost. Nonprofit foreclosure counselors make sure the entire package is complete, and they send it in, and the servicer loses the file. Sure, there are cases where a borrower "forgets" to send check stubs and 1040s. But there are cases where the servicer just loses the entire folder.
Let's say a borrower mails or faxes a bunch of paperwork, but doesn't include pay stubs. The loss-mit department should be able to identify the problem within a couple of days of receiving the documents. It should be able to notify the borrower immediately. But that isn't happening. These two simple steps often take weeks. Meanwhile, the borrower falls further behind and foreclosure draws closer.
I picture loss mitigators sitting in cube farms with five-foot-high piles of papers on every available flat surface. Paperwork gets lost that way.
Don't you think that the loss-mit departments are exaggerating the incomplete-paperwork problem?
Paul suggests that there's a link between rampant fraud and incomplete paperwork sent to servicers: Borrowers don't want to incriminate themselves. Curious to hear more of your thoughts on that.
You know how in many movies and plays, there is a character that is only there for pure comedic relief?
Who do you think plays that role here on this Blog?
They just don't seem to have a clue what the problem is or what the right solutions might be.
Some of them don't even think there's a real problem. It's just a matter of confidence:
"The goal here, in the end, is to get confidence back, get optimism back, to get capital flowing again. And that's not going to happen until people see some positive action on these fronts. And that's what we're trying to do here. This is where the common ground is. What we tried to do is find the provisions we could agree on, set that up, get this ball moving, and get the economy heading in the right direction."
Senate Takes Up Housing Bill : NPR
"State Paperwork Mitigation Working Group"
You lost me. What's a "second tier" loss? (wrt MI)
The MI does not pay any and all loss on a defaulted loan. It pays only the "first loss" up to the predetermined coverage amount. For instance, standard coverage on a 95% LTV loan is 30% of the loan amount. That means that the servicer totals up the actual loss taken (in FC, short sale, workout, whatever), and the MI pays either the whole loss if it is less than 30% of the original loan balance, or it pays the 30% and the investor eats the rest.
No MI would ever insure against all loss: that would indeed create a perverse incentive for the servicer to take the action that is easiest and cheapest for it, without caring how much the loss was for the MI. All policies have a coverage limit on them of some sort.
Does anyone really care about this issue, besides the mortgage insurers? Borrowers sure don't. Let 'em walk away and get a fresh start. What do they have to lose ?
For instance, standard coverage on a 95% LTV loan is 30% of the loan amount.
Besides, what are the odds that house prices could drop 30%? Oh, wait...
"You know how in many movies and plays, there is a character that is only there for pure comedic relief?
Who do you think plays that role here on this Blog?"
Are you trying to say JJ actually stands for Jar Jar?
JJ or SB
Nice report from both you and Paul Jackson. How fortunate we are!
Paul's piece was interesting in that he indicated the numbers are due to "rampant, across the board, pervasive fraud.
Regarding the paperwork, short of repealing the Statute of Frauds, it's difficult to avoid this barrier.
I'd love to hear some servicer stories. I suspect the good ones are earning their salaries.
What's consistent, Tanta, is this characteristic of dogged incomprehension. I won't bore with accounts of NO, however.
I read this through, and then clicked back on the site and re-read the title as "Stated FC ..." So apt.
Who you calling a journalist?
I picture loss mitigators sitting in cube farms with five-foot-high piles of papers on every available flat surface. Paperwork gets lost that way.
I tend to picture loss mitigators who are over-monitored by management (since everyone is these days). Daily reports landing on desks regarding how long loans have been sitting in that mitigator's pipeline, date documents mailed to the borrower, date returned, etc. Any mitigator who was lucky enough to get a complete package returned would jump for joy and then process the damned thing to get it off the reports! God knows they have all these incomplete ones they can't finish up that they're being raked over the coals about.
A lot of them are actually given "incentive pay" for closed cases. I simply do not think the loss mit staff itself is tossing complete packages on a stack somewhere and blowing them off. If for no other reason, that just makes more work for them! Most of these packages probably contain modification or repayment agreements the borrower was supposed to sign. If you let those agreements get another 30 days old, the numbers change on you! Nobody wants to keep sending a mod out with updated balances each month.
I have no idea what kind of cartoonish perception of loss mit staff is common out there. Maybe they deserve some of this strange assumption of incompetence or slovenliness that they are getting. All I know is that it smacks of a contempt for working people sometimes that really gets on my nerves. Nobody likes these companies or their executives, but that's no reason to think that individual employees just lose shit all day.
I am only asking that we recognize that this is a process in which the dog will eat a lot of homework on both sides. It has always been that way. If the servicers are understaffed, they'll have a hard time keeping up with pestering people about it. But frankly, a lot of people just don't follow directions well in normal circumstances, and they follow directions a whole lot worse when they're under this kind of stress. That is not basis for the claim that "paperwork is the barrier." It is the basis for the claim that resolutions of defaulted loans are always messy and difficult even with a well-staffed servicer. The SFPWG is just barking up the wrong tree, I think.
Besides, what are the odds that house prices could drop 30%? Oh, wait...
Mortgage insurance is not about protecting the lender from any possible loss in default. It is about making the loss on default more or less equivalent to the loss on a 20% down loan with no MI.
That's why you don't have to pay MI if you put down 20%. The lender knows that it could still lose money if you default, but it concludes you are less likely to do so because you put so much down. If you put down less than 20%, you pay for MI, because you are more likely to default.
I believe this is the first time I have ever been accused of delicacy.-Tanta
no Tanta, you ARE a delicacy
Some of them don't even think there's a real problem. It's just a matter of confidence:
"The goal here, in the end, is to get confidence back, get optimism back, to get capital flowing again. And that's not going to happen until people see some positive action on these fronts. And that's what we're trying to do here. This is where the common ground is. What we tried to do is find the provisions we could agree on, set that up, get this ball moving, and get the economy heading in the right direction."
Excessive confidence where confidence is not warranted is probably at the heart of all our problems.
That'll be a different matter when confidence gets excessively low and the economy is so deflated that more bubbles are no longer a realistic outcome. But we're a long long way from there.
We should be encouraging people to have more judgement in financial matters, not less - that's key to being creditworthy.
Once we get there then we can start talking about restoring confidence.
Paul suggests that there's a link between rampant fraud and incomplete paperwork sent to servicers: Borrowers don't want to incriminate themselves. Curious to hear more of your thoughts on that.
In some, probably most cases, yes, that's exactly what is happening.
In other cases, I suspect that the borrower originally told the servicer that there was some "hardship" going on, like "I lost my job." If that didn't happen to be true, then the borrower doesn't want to part with his last month's bank statement that shows a direct deposit from the job he never lost. It happens.
Or it is just that the servicer is, as they usually do, requiring at least a token payment by the borrower. Sometimes the one "document" that is missing from these packages is the "check." Or the check doesn't clear.
I come back to the same problem I often have: a lot of these people should never have been put into the loan in the first place, because their past history showed they have no particular ability to manage money or debt, and their purchase of this home is clearly impulsive and too much of stretch for anyone who can do realistic budgeting.
Yet suddenly we expect them to turn into a different kind of person during a workout negotiation. Well, the Big Secret of subprime mortgage servicing is they don't. That's why servicers charge more to service these loans, and that's why every time they apply for a new loan and you ask them about the mess on their credit reports, they tell you it was all a big misunderstanding and a creditor who never applied their payments properly.
The fact that things are moving slowly with regard to servicer response wouldn't have ANYTHING to do with the fact that servicers, per PSAs in most cases, get to keep your average monthly late fees as additional servicing compensation.
You'd think that, since in many cases any they also get to keep modification fees as additional servicing compensation (again per the individual PSA terms) servicers would be bending over backwards trying to get as many mods done as possible.
It couldn't be that it's more profitable for a servicer to keep a borrower in some form of default for as long as possible would it? Why not collect as many monthly late fees as possible and THEN collect the modification fee? That's just sprinkles on top of the icing...
I see our colleage PJ at Housing Wire
typo. should be "Hosing Wire."
Thanks, Tanta. The picture is getting clearer -- figuratively and literally (wink wink to the friend who sent a pic of a loss-mit office with nary a tall stack of paper in sight)!
Paul suggests that there's a link between rampant fraud and incomplete paperwork sent to servicers.
Certainly, in the not-too-uncommon case where a borrower lied about thier income for a chance to jump aboard the perceived housing gravy train, there is little reason to "prove they lied". Moreover - to even bother to stay in a home they paid nothing out of pocket for, is now worth less than they owe, and to top if off - they could just go rent somewhere for less per month. What will become of them if they choose not to incriminate themselves? Their credit's ruined? - pshaw - it was crap to begin with. They basically get evicted (an experience which for people with 540 FICOs, is about as unusual and painful an experience as...um...a Tuesday).
I feel much far more sympathy for the couple PJ cited in Chicago who cannot buy with their 5% downpayment thanks to the aftermath.
Here in Miami-Dade and Broward County, I know at least 2 people who are 40% underwater. Maybe more, but at least that much. Unless the lender is willing to cut that much off the loan, these people cannot make the payments.
In addition to the loss in value, one lost his job, and the other lost much of his business--he's an appraiser.
So the lender would have to chop over $100,000 off the loan to have a hope of getting any type of response from the borrower. They will lose at least that much, if not more after foreclosure, but they are not up to facing this degree of loss, yet.
Also, I simplified it; 2nd mtges are involved too.
I honestly think that cram down legislation would actually lose the lenders the least amount of money, but they still don't want to acknowledge their losses to be as huge as they are.
And remember, none of these people care anything for the lenders; they are pandering to the borrowers, and it would just be too hard to learn anything about the lending industries practices.
It couldn't be that it's more profitable for a servicer to keep a borrower in some form of default for as long as possible would it? Why not collect as many monthly late fees as possible and THEN collect the modification fee?
wouldn't that, in effect, intentionally be increasing the probability that the modification will fail?
--
First, let me admit that Tanta's remark was correct and I just reacted to my revulsion towards simple-minded populism practiced by our govt officials. I readily admit to my mistakes when I am persuaded.
I would appreciate if Tanta can answer this in some detail:
Who are the primary beneficiaries of "Foreclosure Prevention?"
In my view it really doesn't help the "homeowners." Real homeowners cannot be foreclosed upon! BTW, I am all for private parties renegotiating terms (workouts) that are mutually beneficial and I am in agreement with Tantas commentaries on the subject. Also, I think that preventing a foreclosure today might be worse for one or both parties sometime in the future unless one assumes rosy scenarios for the future. Foreclosures are necessary part of the system and the process of home financing.
Jas
Here in Miami-Dade and Broward County, I know at least 2 people who are 40% underwater. Maybe more, but at least that much. Unless the lender is willing to cut that much off the loan, these people cannot make the payments.
You lost me here--how does equity in the house relate to ability (as opposed to willingness) to make the payments? It seems to me that the ability to make payments is a function of (1) monthly income and (2) the monthly payment....
What I'd like to know is how much it will cost to just work all of this out. Do these workouts involve a massive amount of man-hours, paperwork, lawyer fees, and God knows what else?
If so, maybe it really is cheaper to just say "screw it" and restructure these things without detailed analysis. Sure it's a roll of the dice, but maybe that's the best we can hope for?
En Fuego: If you have access to a time machine and can go back about five years or so, I suspect that post will be enough to land you a senior management position at a servicer.
--
Tanta: "I believe this is the first time I have ever been accused of delicacy."
That would ruin our reputations! Its like I read this article "Clueless in America" and my reaction is that that is a euphemism. The truth would be Born-and-Bred Dopes In America. It is a systematic process.
Jas
"I know at least 2 people who are at least 40% underwater"
Six months from now that is pretty much 25% of the people in CA...
and AZ...
and NV.
En Fuego-
Restructure=Revaluation
Currency that is.
En Fuego, the problem with just "restructuring" without any analysis is that it just kicks the can down the road a few feet.
What do you do when the first payment due under the "restructured" terms is late? Do it again? Or can foreclosure be considered "necessary" at this point?
We're getting perilously close to simply declaring across-the-board debt forgiveness. I can see the arguments for doing that, but I can't see deciding to bring on that level of economic turmoil just because some mortgage servicers are backed up.
It's like the old joke: what did the Visigoth say to his demoralized kid? "Don't give up, son. Rome wasn't sacked in a day."
En Fuego,
What you wish to consider here - and you have company - is gov't intervention in private contracts.
There's precedent, of course, but that action might have some bearing on the future availability of credit for home purchases. In your world, every loan will become portfolio and its terms subject to alteration by fiat.
Sorry for overstating. I just see ex post facto problems in this.
Whines: This post is tooo loooongg.
(Just kidding.) Thanks Tanta!
Yalt said You lost me here--how does equity in the house relate to ability (as opposed to willingness) to make the payments? Duh. Without any equity, how are they supposed to get a HELOC to make their mortgage payments with?
Tanta - If you had an MBA from Harvard or some other prestigious school, you would know the following: You don't have to understand the details of any business or business process in order to be able to run it. You just have to marshall support and resources enough to begin to change it, then move along quickly before any measurable results come your way. Let me dumb it down for you even further: Scapegoat, infusion of cash, move along. Repeat.
OT--Bill Miller of Legg Mason says "that by far the worst is behind us".
[M]ore and more Americans no longer consider their mortgage to be a binding contract.
I am SOO sick of this meme. The contract was "You make the payments OR we take the house." Ex-post-facto whining about how the counterparty was never supposed to choose option B even though it's explicitly outlined in the contract gets old really fast. Lenders who wanted to make option B less palatable were free to demand more borrowers' skin in the game.
Holden Lewis - Look, if you wait until the last minute or send in an incomplete package, that sucker is going to get dumped. First, when someone "forgets" to send in their pay stubs, it is very likely that there's a good reason for it. It's the pay stubs or electronic deposit record that are the easiest of the paperwork to provide, you know? If you get very late package that's incomplete, it's not even worth pursuing.
You have to understand that loss mitigation is about mitigating losses, and that most of the manpower and money is going to be exerted on the cases with the best chances of mitigation. It is the borrower who has defaulted. The servicer/lienholder has no obligation to throw their good money after bad. To actually mitigate losses you have to move very quickly on the ones that look doable and avoid the ones who are jerking you around. It's a form of triage.
Another thing you should know is that borrowers will sometimes do this last moment hoping to delay the foreclosure action - to keep it in Loss Mit for another month or so. Nor are they always honest with the credit counselor. It's perfectly possible that the credit counselor could send in a package that he or she thought was complete, only to have the Loss Mit dept discover it wasn't. Maybe the credit report showed some accounts not listed.... Maybe even another mortgage not listed! You know what you'd do? You'd put that sucker down and move to the next one. Of course legally you should send an adverse action, but hey.
It's too bad that Casey Serin's website still isn't up, because he demonstrated the pattern pretty well. Foreclosure would be scheduled on Wednesday, and he'd send off the package maybe Monday or the Friday before, then he'd badger the lender about stopping the action. He did get several of his lenders to postpone action, btw. If you are not careful, you can spend a great deal of time and money on people for whom there is no chance. Then your Loss Mitigation group becomes your Loss Magnification group. If you can't keep it out of foreclosure, you need to get it there as quickly as possible.
There is a federal law which addresses information security issues about leaving paperwork with account numbers linked to people's names, addresses, telephone numbers and the like lying around where, say, the cleaning service can access them. If any servicer did have cubicles with stacks of these files lying around in the open day after day, they'd be nailed on their Info Sec audit.
Or, if I may paraphrase Ralph's post above:
In a race to the bottom, the bottom always wins.
Don't get me wrong, I can definitely see "just restructuring" as kicking the can down the road.
My concern is that our choice is going to come down to doing nothing ( or very little because the servicers can't handle the workload ) and doing something less than ideal. Obviously the ideal solution would be to "do the right thing" and perform the required due diligence that was never done in the first place.
But is it realistic to expect that will happen? Or, perhaps the more relevant question is will happen quickly enough to make a difference? I honestly don't know the answer. But as Tanta pointed out, if you wait too long to get a deal in place then the deal probably won't happen.
Someone needs to figure out the expected costs of "quick and dirty" versus "doing the right thing". If the costs and expected losses of the former are lower than the latter then maybe "screw it" will work? Then again, "quick and dirty" got us into this mess so it's hard to see how the same strategy will get us out.
"I am SOO sick of this meme. The contract was "You make the payments OR we take the house.""
My Note reads, "In return for a loan that I have received, I promise to pay $$, plus interest, to the order of the Lender." The only time the word "or" appears anywhere in the Note is when I agree to make all payments using cash, check, OR money order. I've read the whole thing, and that is the one and only choice I agreed to when I signed the Note. I also signed a mortgage, which grants the Lender the right to various forms of recourse should I break the covenants I made in the Note. But the Note gives me no options (aside from the right to prepay, and the aformentioned choice of tender).
Can you tell me how your contract differs? Or do you simply assume the Note means what you wish it meant?
lawyerliz:
"I honestly think that cram down legislation would actually lose the lenders the least amount of money, but they still don't want to acknowledge their losses to be as huge as they are."
maybe i read too much of mike shedlock, but i suspect it is less about not 'wanting' to and more about they 'can't'.
if the banks are the ultimate owners of these loans, then each time they take a loss it would be a hit to their capital reserves, correct?
that may well turn out to render maxedoutmamma's wisdom of "If you can't keep it out of foreclosure, you need to get it there as quickly as possible." upside down.
If the people living there aren't destroying the property, and they are mowing the lawn, it might be the best scenario for the moment.
Oh - and Holden, one final comment regarding the credit counselors who think they are sending in complete packages and the Loss Mit people are just randomly flushing them:
Every servicer, whether the servicer is servicing their own portfolio or servicing someone else's, is operating under a series of guidelines as to how many times you can do what within a certain period. So if someone was late on payment three, caught that up by payment seven, then skipped payment eight, promised this that and the other, didn't perform, caught up on payment 13 (tax refund), is behind again by two months on payment 20 - the credit counselor may not realize that the borrower has this history which now disqualifies the borrower from further efforts.
A lot of times this happens, and the credit counselor is the last ditch effort to forestall foreclosure, and often the credit counselor may not get the whole story. The moment the servicer looks at the history he or she realizes it's no go.
Actually the joke that came to mind involved "Huge tracts of land!"
This will end when we offer all of the surviving mortgage holders a nice 50% haircut in their loan amount, or we have a nice 75% rise in the average wage.
How long that takes is a subject of speculation!
Someday this war's gonna end...
My concern is that our choice is going to come down to doing nothing ( or very little because the servicers can't handle the workload ) and doing something less than ideal.
Doing nothing? Nothing????
This report shows that around 30% of the seriously delinquent loans are in process for loss mit. And cases are getting closed.
I don't know how much experience other people have had with a nonperforming loan portfolio, but getting 30% of them worked out short of foreclosure isn't exactly nothin'. And this is just going to get into the same crap we've had to deal with on the delinquency stats, so let me remind everyone, again, that this is a "dynamic" pipeline. If 30% of the loans currently delinquent are in loss mit, and 30% were in loss mit back in October, most of them ARE NOT THE SAME LOANS. The issue here is that the rate of new delinquency is keeping up with the rate of "closing" workouts.
I would frankly be shocked if even 50% of this particular pool of delinquent mortgages could reasonably be worked out. If so, though, we're doing 3/5 of what we need to be doing, not 0/5.
It never helps to accept the opposing side's straw man.
When I decided to sell my home and rent last July, I went to view some for-sale townhomes in a new development where one was advertised for rent, and found that several more were also for rent, and that several of those for sale were vacant and clearly owned by speculators who'd bought them to flip.
So since then I've been monitoring sales on that street through the Chicago Sun-Times' portal to an actual-sales database (which gets recorded usually about two months after closing). There I've seen that, although there's not a huge difference in size and quality between those townhomes, the range of selling price had been between the low 400s to the mid-600s, and one of those vacant in July was recorded in mid-October as sold at 600+ (closed in August?). That home's now on the MLS as an REO in the mid-300s, along with several others that had sold somewhat earlier in the mid-600s.
Interestingly, most of the mid-600s sales had been to buyers with names readily identifiable by form as "Xxxxxian" (where "Xxxxxia" is a certain Baltic nation).
Might this be a case of organized fraud by a gang that's skipped back to Eastern Europe? Or is it a case of a bunch of naive immigrants deciding to live/invest in the same area (one name was on two purchases)?
It appears that at present at least half these townhomes are REO (one apparently stripped of appliances).
MaxedOutMama said: "You have to understand that loss mitigation is about mitigating losses...."
At the risk of belaboring the point: Loss mitigation is about minimizing the losses of the lender, not the borrower.
U.S. Architects' Services Index Falls to Record as Demand Slows - Bloomberg.com
More evidence of non-containment.
A couple of points:
- Foreclosure is a loss mitigation tactic.
- Servicers are working for the investors in the mortgage pools, under those terms they are supposed to choose the loss mit option with the lesser loss to the trust.
- Borrowers are notorious for not following direction or sending in the workout payments as directed. I am not sure of percentages, but more than half of workouts on subprime loans FAIL, and foreclosure resumes. Ultimately, this increases the loss to the investor.
- Some servicers are starting "unsolicited modifications" where they send the mod paperwork to the borrower early on in delinquency and all the borrower has to do is follow directions and send it back. Most of them don't. Why? I refer to what PJ said about fraud.
alright, now i'm curious: is "colleage" a proper spelling? i can't find it in any online dictionaries (not even British ones!).
My Note reads, "In return for a loan that I have received, I promise ..." ... I also signed a mortgage...
The original poster spoke of mortgages, not notes. Be that as it may, I can phrase it a different way: In the combined text of your note and your mortgage, what percentage of the verbiage is dedicated to what happens in the event of a breach, as compared to what happens in the event of mutual performance? Nearly the whole thing is composed of definitions of breaches, penalties and remedies. And yet people pretend that nobody contemplated a breach! The whole point of a contract is to clarify the parties' positions in the event of a breach. I don't want to get all Biblical on you, but in the case of lending against the value of land, there really isn't much new under the sun. Heck, what do you think a "non-recourse state" is? That's a place where not only did the two counterparties contemplate the possibility of breach, but the government did as well. Historically, the value lent was less than the value pledged, for reasons which were obvious to nearly everyone up until very recently. Don't try to convince me that stuff which can be read in case law stretching back centuries is inconceivable.
(I'm still waiting for "subtle.")
Tanta | 04.23.08 - 10:41 am | #
Well I tried to allude to it when I mentioned "Lilith" by Rosetti.
And, subtly of herself contemplative,
Draws men to watch the bright web she can weave
colleague, baco
I think these servicers & mortgage originators should merge - do it now, it seems to work great for the airlines.
Maybe if they offered frequent refier miles we'd get ahead of this mess.
colleague, bacon
well yes, but i wouldn't put it past Tanta to know of and use spellings that are so obscure that even british dictionaries have never heard of them.
I've thought for a while that Guantanamo Bay might be recycled as a detention facility for leaders of mortgage brokerages, conduit entities and securitization operations. Maybe, in the spirit of equal treatment, that should be accompanied by mobile waterboarding units to elicit the truth about assets and income from delinquent borrowers. Although not specifically addressed in the hand wringing report that you are all discussing, I'm sure these and other possible tactics are under private consideration among the Sovereign Wealth Funds operators who are going to end up owning this place, at the rate things are going.
Of course a breach is conceivable. But please note that it is called a breach, not an option. The Note, which is itself a contract, contains no options. And my state (MA) is a recourse state. I have the "option" to prepay, or to use various tenders. I don't have the option to not pay. I'm going by the specific language of the contract. I would not be willing to bet that a judge would ignore that language.
My Note reads, "In return for a loan that I have received, I promise...
For those who continue to be outraged about this widespread breach of promise, apparently unique to modern times, it may pay to contemplate why the interest rate on a note secured by a mortgage has been considerably less than on an unsecured note for, um, centuries.
a lot of these people should never have been put into the loan in the first place
household income $5,000/mo; auto loan $450/mo; placed in Flex100, $200 purchase price, 100% LTV
evening before closing, lender informs settlement agent of clerical error, monthly MI premium increased to $750/month, DTI 65%, no reserves;
first time homebuyer with 3 young kids, all his possessions in a moving van, having given up his rental, signs on the dotted line.
Contacted MI carrier & servicer, requested they consider a loan modification or faciliate the borrower's ability to refinance into an FHA loan by re-applying $750 MI payments to principal to lower the payoff. Fannie's loss mitigation department: "We don't allow forgiveness of debt." Servicer stated borrower would not qualify for a refinance and declined a loan modification. MI carrier willing to a pay claim. Servicer unwilling to apply the claim. Quote from the servicer: "We don't correct for errors made at origination." Foreclosure is an awfully expensive means of correcting for origination errors.
I'd like to know how many borrowers could have qualified for FHA loans or [State] Housing Finance Agency loans but were placed in Alt-A products.
Sandy said: "I'd like to know how many borrowers could have qualified for FHA loans or [State] Housing Finance Agency loans but were placed in Alt-A products."
It was astonishingly common. I can't give you a number but, trust me, it would be a very large share.
JM:
Regarding Chicago *ian foreclosures. The people I have spoke to representing short-sellers told me that a lot of the SS clients in Chicagoland were truckers. Five years ago they were taking home six figure incomes and today are taking home a third of that. There are many *ian folk in the trucking business.
household income $5,000/mo; auto loan $450/mo; placed in Flex100, $200 purchase price, 100% LTV
evening before closing, lender informs settlement agent of clerical error, monthly MI premium increased to $750
$750/month MI premium? On a $200,000 loan? 450 bps premium?
I certainly can't remember the last time I saw a premium like that. Not with a borrower who can qualify for Flex100.
Enfinity,
That's really sad. All the *ians I know personally are people of the highest quality. I'd hoped the people taking those losses weren't like them. Trucking is damned hard work -- hardly anyone earns their money more.
dryfly's "I think these servicers & mortgage originators should merge" and Allen C's "I suspect the good ones are earning their salaries" -->
Per Tanta's many past missives on this subject, part of the problem with the few servicers around to perform appropriate mods is that the business model was to fire the local/regional servicers ( because we'll never see a giant slate of refi's, you silly person, house prices always go up! ) and pocket the differential in servicing fee paid by the contract with the MBS holder.
Please feel free to expound/correct, Tanta..
"The Check Is In The Mail" is so 1970's. Now the term is "The Computer Ate The Check" or "I Clicked on Send, so I don't know why you haven't received it yet".
Bacon,
It's colera.
The $750 monthly mi premium.
I asked a real estate attorney, not the one that closed this loan, if he had ever been tempted to ask his client to step out of the room and take a walk around the block and think through whether to go forward with the transaction. The attorney said it would be professional suicide to do so. The borrower's deposit on the house was $1,000.
Fannie's loss mitigation department informed me that since the borrower signed a contract the terms including the mi premium could not be renegotiated and that Fannie had complete confidence in their partners' ability to provide the appropriate assistance, what a crock.
I believe the MI carriers no longer insure the Flex100 at any price.
jm @ 1:48 pm
Where are they? Downtown? Neighborhood? Suburb?
"I asked a real estate attorney, not the one that closed this loan, if he had ever been tempted to ask his client to step out of the room and take a walk around the block and think through whether to go forward with the transaction. The attorney said it would be professional suicide to do so."
At least in MA, the lawyer at closing is representing the bank, not the lender.
In MD the closing attorney is hired by the buyer and darn tootin' I would expect MY lawyer to give me a heads up on that.
I did PAY for the lawyer at closing, yes, as part of the closing costs. I also asked him who he was representing, and was told he represented the lender.
All I can say is that if the closing attorney represents me, the lender, then by God I'd want him to say, "WHAT? You're trying to increase this guy's MI to 450 bps (I would have expected less than half that) the day before closing? Are you insane? Do you want to get accused of predatory lending? As the attorney representing you I suggest you ask yourself what the bloody hell you think you are doing here."
This is an example of a situation in which NOBODY benefits. Per Sandy, the only party who might--the MI company who is getting that exorbitant premium--is the only one volunteering to pay to fix it! That tells me that the MI company has no interest in trying to collect this premium from this borrower.
The lender didn't benefit from it. The investor doesn't benefit from it. The settlement agent didn't benefit from it. Most assuredly the borrower didn't.
But what, since some dipshit called to "correct" the closing instructions the day before, the closing attorney can't say squat to the lender about it?
It doesn't sound to me like anyone got represented.
I did some reading and apparently that settlement lawyer is a busy beaver and can represent nearly everyone at the same time. In most states. Of course the buyer gets to pay for this.
I did FHA and my MI was $42/ month. On a loan about half the size of that guy's.
Well, Joy, you also paid an "up front" one-time premium that was in your closing costs. The "monthly" FHA premium is thus smaller than a conventional MI loan, because on the conventional loans there isn't that upfront part.
I'm having a hard time believing that anyone could get charged more than about 150 bps on a Flex100. (That's a Fannie Mae program with pretty high credit requirements in exchange for the high LTV). That would about $250 a month.
The buyer may select the atty in certain states but they represent the lender. This presents a problem for lenders because any dipshit can close the loan (or should I say present and explain the documents that their assitants create).
JM
Last time I spoke to the representative he was working on short-selling over a dozen Florida properties for a group of doctors that couldn't carry them any longer.
Many people with good intentions are caught up in this mess...but many more people that took advantage of greedy lenders/investors.
Sandy - I got the same mi premium rate ($123.50/mo) from two different rate engines here and here.
(assumed ooc,purch, $200k value, 95 ltv, 660 FICO, full-doc, 30-yr fixed, 30% mi coverage).
clerical error? There must be more to this story of yours.
Shnaps, she said it was 100% LTV (Fannie Mae Flex100), and I assumed at least 35% coverage. Even if that could get through DU with a 620 FICO, I don't see how anyone could possibly get that kind of MI.
Cliff's Notes version:
The loan was approved as a 30-YR Expanded Approval III Flex with 35% MI coverage. (Perhaps the underwriter pulled the approval and placed him in a different product. I don't know.)
Short Refi's: My question to you, why does Fannie absolutely refuse to authorize an MI carrier to apply a claim that would allow a borrower to refinance into a more appropriate product? Why are servicers dead set against approaching MI carriers when the borrower first initiates contact pleading for assistance? The claim requested (2.25%) would be insignificant when compared to the loss incurred by foreclosure. The refi into an FHA would have dropped his monthly PITI $900/month.
Why are servicers so insistent that borrowers be technically in default before they will provide assistance. This was a full doc loan that should not have been approved and would not be approved in today's market given the changes to guidelines.
It's a shame the automated underwriting systems couldn't flag loans as being eligible for more affordable loan products.
Sandy, I still don't see why the guy needs a short refi. It sounds to me, from what you've described, that he needs to have his MI premium adjusted.
I guess I still don't understand the situation.
It seems that many people who should not be homeowners are. It also seems that what was once looked at as a hard earned privledge is now considered a vested right.
It also seems a waste that the questionable loans cannot be somehow renegotiated to terms that both borrower and lenders can live with.
It seems that the power will be granted to the Bankruptcy Courts to force negotiated terms. There is precedent in law for this. The 80's saw a similar situation with American Farmers who were in a similar bind as collateral values fell and income from falling ag prices fell, the loans were totally restructured by the Bankruptcy Courts. The existence of government powers to force renegotiation, encouraged the lenders and borrowers to bypass the Bankruptcy Court system as a clear outcomes were well... very clear to all parties.
After the government laid down the law, people followed it. The law is in the process of being laid down currently and I expect an outcome similar to what happened in the 80's.
Ethan, Suburbs, near-in. I won't say which one, as individuals' names appear in the Sun-Times data, and I do not want to risk falsely accusing a hard-working *ian who was suckered by the housing boom.