"They are, in their own way, just as "ruthless" as the so-called walkers-away"
Exactly so. It was their loss, their poor choices... but they felt somebody should concede something to them, 'share' with them. It is a pretty general American attitude these days. Everybody gets do-overs.
Negotiating a better deal is ruthless? Why is it only OK for Corporations to redo their deals in the middle? (I am looking at you BofA)
The bank didn't have to agree to the deal. I read the article this weekend and believe me the banks are so clueless at this point they could have stayed a year without paying, then walked. That's ruthless.
Is it ruthless to lend money to people so close to the edge they are assured of failure? Is it ruthless to lend money at exhorbitant rates because people are desperate? Why is ruthless good if you are a company but bad if you are an individual?
...Servicers keep going on about a "sea change" in borrower attitudes about foreclosure. I just don't see that.
I would 2nd that assessment. There's probably less of a stigma if someone can conclude "I'm losing my house because of the economey" not "I'm losing my house because I can't make my payment". The end result is still a default due to inability to pay.
I think the semantic distinction Tanta is making is very important. So far, I have seen virtually zero documented evidence that Joe Homeowner has done the math, made the computations, and realizes, "Honey, no matter how we cut our expenses, we're sinking. Our smartest move is to move out. Oh well, so long house." Instead, various nastygrams from their lender seem to be the proximate cause of this realization.
The analogy I would draw would be Joe Homeowner 'walking away' the same as 'Mission Accomplished'. You can call it what you want, but the facts on the ground indicate that others (Iraqis and mortgagors) are calling the shots.
☺☺"Why is ruthless good if you are a company but bad if you are an individual?"--Hmmmmm | 05.05.08 - 9:47 am | #
It's called divine right. As Jacques Barzun explains: "...if he (the king) does govern badly and the people suffer, it is because they have sinned and are being punished."
Moving Forward was created by Newbury Park homeowners who are losing their house to foreclosure. By bringing distressed homeowners together, we hope to ease the negative emotions that come along with foreclosure.
Perhaps you can explain the couple that have formed a mutual support group to justify their financial troubles:
That's just what Americans--and especially our dear Californians--do.
There are support groups for survivors of every known human experience. Why should FC be any different?
If that's the kind of thing that floats your boat, why should I approve or disapprove or even have an opinion? Given that my own personal response to the situation, had it been me, would have been to buy a couple packs of cigarettes and a case of cheap wine and oblivate myself, I can't say forming a support group is anything to frown on.
Why is it only OK for Corporations to redo their deals in the middle?
hmmm. good question. must be a riddle.
--Are you good at riddles?
Stephen answered:
--Not very good.
Then he said:
--Can you answer me this one? Why is the county Kildare like the leg of a fellow's breeches?
Interesting: "You can't fire me, I quit!"
I see that happen every once in a while even though the severence from a firing can be pretty good, while quitting yields nothing.
Makes me wonder if some country music singer is going to write a little ditty a la Johnny Paycheck, "Take this deed and shove it, I ain't livin' here no more?"
That, in a nutshell, is why I just fail to understand people who keep wanting to make a distinction between "walking away" and "getting foreclosed." You are exactly correct that it's the same thing as "quitting" after you've been put on probation, if not fired outright.
But people do want to tell the next prospective employer that they quit, they didn't get fired. That's what makes the walk-away thing so ludicrous to me. One of these days these folks will want credit again, and they'll find out that the lender might accept them if they were "fired," but isn't likely to be interested in them if they "quit."
I'm still choking on the first example. Giving Ms. Johnson a 4% 30 year fixed (YES FIXED) loan is huge moral hazard reward for someone who was so irresponsible. Where is my 4% 30 year fixed moral hazard reward? Of course I don't qualify for the tax rebate nor have I ever gotten my white privilege either. I guess I'm just destined to work hard, saving my ever shrinking wages and being burdened with prime lending rates and sub-prime saving rates.
I have no particular beef with negotiating with lenders, although if you just "want a better deal," you need to go talk to someone about this thing we call "refinance."
In these workout situations, it isn't "getting a better deal." It's getting some compromise that keeps the loan out of FC. I am not now and have never been saying there's anything wrong with that.
But I simply think people need to be clear about what their "negotiating position" is. If it's "you reduce my payment/debt/interest rate or I default on every covenant of my contract with you," you aren't "negotiating," you're threatening. I really don't see why "ruthless" is the wrong word for that. One needn't get all righteous and moralistic about it; on the other hand, I see no reason not to call a garden implement a garden implement.
And it's as true of corporations as of individuals. I am also not interested in the psychological dodge that says well, corporations do it, so it's perfectly OK if individuals do it.
The Ramseys were clearly unable to afford the reset payment on their loan, and they got a reasonable deal from Litton--and they were willing to pay $3000 of the "forgiven" past-due amount to get it, which is rather more than most borrowers do. I'm not trying to make them into terrible people.
I simply note that they were willing to propose that Litton take a $100,000 loss on a short sale. Do they actually believe that this house is worth only $200,000? Why then were they so enthusiastic about getting their loan modified down to $302,000?
I am with Tanta on the walkaways. I think more people than we realize will pay on an upsidedown loan as long as they can AFFORD the payment. Those who say they can afford it but chose to walkaway...I would guess that "afford" would be subjective, and that may include...if they choose to not eat.
But one area that a coworker explored was buying another house that they actually want and walkaway from their current condo. They overbought but stayed within their means. They paid 290K for a condo which is worth 190K now. They can afford a 400-450K loan and want a bigger home as their children grow. They now can afford a 4 bdrm detach with 2car garage and yard. They are thinking about buying it and walking away from the condo. ONce they have their house they won't need their credit. I don't really know if they can pull it off, but if they can legally without much damage except to their fico, then you may have a large category of actual walkaways in the future of move-up buyers.
I really like Tanta's analysis and the "You can't fire me, I quit" analogy.
I know a young couple who I'd guess are close to a quarter-million dollars underwater. This in an area where median household income is $45K. These two are bright and honest, yet I've been somewhat surprised that they "hang in there" with relatively enormous negative equity. Likely it is a mix of the ethics of borrowing and re-paying and reluctance to acknowledge defeat/error. But when the social norm changes and their friends have walked, it will be interesting to see if they follow suit.
People do not want their credit ratings killed and they like to live in "houses" - This seems to be the main reason for not many walkaways.
I bet if people find a way to buy a lower priced/right sized mortgaged house before they walkaway from their UPSIDE DOWN mortgage house - then all hell will break loose.
The article said the rate was fixed for 3 years on the original mortgage. Then they said the payment jumped last year which is 2 years after the mortgage was taken out. Another case of investigative journalism with no investigation!
I bet if people find a way to buy a lower priced/right sized mortgaged house before they walkaway from their UPSIDE DOWN mortgage house - then all hell will break loose.
I will only observe that people who think lenders/servicers are behaving "ruthlessly" now have no idea what might be in store if what you describe comes to pass.
Part of the "hell" that will break loose is that servicers will start doing judicial FCs and pursuing those deficiency judgments and making criminal referrals for fraudulent loan applications. The only reason they're not doing it much right now is that it's expensive relative to what you get out of it. But that math really would change if the math changes--if it gets to the point where it's worth it for lenders to make some examples, then I would bet they'd do it. If your scenario came to pass, they'd have every reason to do it.
One thing about the "buy then default" plan that I never see addressed is how these people plan to make sure that the new loan is never sold to the same investor/servicer who holds the old loan.
The article said the rate was fixed for 3 years on the original mortgage. Then they said the payment jumped last year which is 2 years after the mortgage was taken out.
I think that was just an awkward way of describing a 2/28 with a 3.00% first adjustment cap and 1.50% semi-annual caps. Such a loan could, in theory, increase by 6.00% within three years: 3.00% after two years, another 1.50% in six months, another 1.50% by the third anniversary.
Tanta-- I think "walking away" as a concept has two different meanings/connotations--one camp thinks people are walking away from their responsibilities, the other thinks they are walking away from the grief and hassle of six, eight, ten, twelve months of enduring lenders and collectors trying to squeeze blood from a stone. If the financial reality is that you can't afford your payment, and are going to be foreclosed on, and your lender won't talk to you, "walking away" isn't so much a financial decision (you're screwed either way) but simply a way to avoid endless phone calls and letters reminding you that you are a blight on society, a failure, a bad citizen, possibly a criminal, etc., etc.
And I'm amazed how some people seem to think that the "responsible" thing for people to do when they cannot meet their obligations is to sit there and get yelled at by a bank for the duration of the foreclosure. If you can't meet your financial obligations, the feeling seems to be, you should at least submit quietly to the lengthy shaming process, which will be administered by a soulless corporation that wouldn't know an ethical precept from a 100% financed hole in the ground.
As for distressed borrowers wanting someone to "share" their loss, the lender assumes a share of the responsibility for failed loans when it signs the papers. That's the risk they take, which is supposed to entitle them to a positive return if the risk turns out to be worthwhile. If the bank makes bad choices, hell yes they will share in the loss. Isn't that their business model?
There are two major attitudes towards contracts (including mortgages and mergers).
One is that your promise in a contract is a moral and ethical commitment.
The other is that a contract just sets the starting points for litigation if there's a breach, or for settlement of a threatened breach.
Clearly, the Johnsons, Ramseys, BofA all see things the latter way. So, too, by and large, do the judges that Reagan and Bush I appointed to the federal bench (think Richard Posner), at least in cases involving employers breaching contracts with employees, or strong companies breaking contracts with weaker ones.
they would, apparently, have been happy to see their lender take a $100,000-plus loss on a short sale to salve their pride.
Reconcile that with:
"I was willing to do whatever it took so that we didn't lose the house," she said.
and I'm wondering if it wasn't her pride, but just her sense of doing as right as she could, by selling in the acceptable way instead of just abandoning all notions of her commitment.
For some people, I do believe conscience and self esteem is involved here too. If you can get a seller for $200,000, and the bank is willing to take $200,000, well at least you can sleep at night feeling you did your best and didn't try to rip anyone off. If you just walk off, then you feel like a schmuck.
Is that an issue of pride or just basic self-respect? Resolving your conscience for some people is the difference between feeling like an irresponsible loser, and feeling like you failed but you're not a total loser.
We will assume it was a 2/28 if it adjusted after 2 years.
So it had a start rate of 6.4% and a margin of around 6.5%. So this loan had to have fully indexed with no caps to get that payment increase. 5.35% LIBOR last year when it reset + 6.5 Margin.
No Caps. Very unusual.
Of course LIBOR is now back down to 2.99% so it would be resetting back down if it hadn't already.
Are you sure there aren't relitters and mortgage brokers involved?
Susan, if I understand you correctly, your definition of "walking away" is just "not answering the phone."
If that's right, then the majority of foreclosures are now, and for some time have been, "walkaways," since "no contact" is reported by servicers in the majority of cases.
There is no reason why any borrower has to put up with months of futile collection calls or any other harrassment. Tell your servicer you cannot pay and will tender deed in lieu. If they won't accept the deed, tell them you have no intention of contesting the FC. Not even the Evile Terrible Very Bad servicers I know of want to waste hundreds of collections department person-hours on you at that point.
If they do, declare BK. That forces the collection efforts to stop.
I do not happen to think that the term "walk away" is being used by the media of late to mean simply uncontested FC or borrowers who screen the servicer's calls. The "meme" definition is that these folks could afford the payment, but just choose to "let the house go" because it's a "losing investment." The old quitting-not-fired thing.
Personally I have my doubts that all these folks can really afford the payment. I think they're like the Ramseys: there's a kind of "psychological" definition of terms here that helps them not feel like financial failures.
I have never advocated aggressive, nasty collections practices, but I wonder from your comment what kind of collections efforts would ever meet with your approval. And I wonder what you expect lenders to do when payments are not made? Just quietly and immediately foreclose with no efforts to collect the debt? Skip the public auction part, and just force you to sell your property privately in some sweetheart deal to some person nominated by the lender, without an auction to establish that the price was the best the market would bear? Those practices are illegal. For good reason. Foreclosure is protracted and public to protect borrowers. Lenders would love to see them become speedy and private, but the public wouldn't.
As I said, any collector who worked for me and who insulted or demeaned a borrower would be shown the door. But would I refuse to engage in any collections efforts with a borrower who did not explictly tell me there was no hope of ever getting payment? Of course not.
and I'm wondering if it wasn't her pride, but just her sense of doing as right as she could
I fully agree that for the Ramseys, maintaining one's pride is, exactly, a matter of doing as right as one can. I'm sorry if I gave the impression that I meant something else. I didn't mean what I guess you think of as "bad" pride--hubris, arrogance, whatever. Self-respect is probably a better term.
Nonetheless, Litton clearly found that offer to be too low. Either the property wasn't marketed properly, in Litton's view, or it was an intentional low-ball offer. Who knows.
My point was simply that if the Ramseys believed it was the best price available, that means they believe their house is only worth $200,000. I guess they are heroes for accepting a workout to 7.00% on $302,000 for it.
If they accepted the workout because they really believe that the house is worth more than $200,000, then . . . they were seriously deluded when they submitted the short sale offer.
Many people are, of course. That's why so many short sale tenders fail. Ask a relitter and they'll tell you it's because the servicers are crazy and incompetent. I do wonder if that's always the case.
I carry the paper on a house that is somewhat under water. The buyer lost her job, and is building another employment strategy.
What should I do? I leave the contract as it is, because I gave them the best financing conditions they will ever get. But I let them stretch out the payments.
The collateral is still there, but I am calculating the foreclosure costs vs the stretching out costs. Bot me and the borrower intend to stretch as long as possible, and the stretching gives us a temporary balance between equivalent rental, foreclosure costs, and likely undershoot in the bottom.
Yes, me and the borrower together watch sales and we try to get at the undershoot and price that in.
Honestly, I think all this yapping in the press, blogs, etc. about "walking away" is a huge waste of time. I'm a little suprised that this blog spends so much time on the subject as well. Maybe because the readers keep bringing it up?
A walk away is a foreclosure. The outcome is the same, so why do we care about the motivation? The only reason I can figure is that we might fundamentally model the probability of default in a different fashion. Or, maybe we would model the distribution of "loss given default" differently?
A really good article.
What do you think of the position of the Treasury Department, which asserted last week that people who walk away from homes they can afford but have negative equity are "...speculators who do not deserve any government assistance."?
Allow me to play devil's advocate for a second, though. There is a clear objective difference between a party that can scrounge up the means to honor an agreement (however painful the adjustments may or may not be) and a party for which this is a physical impossibility no matter what the will.
This distinction may not mean alot in practical terms, at least in the short-run. As you note, in the end the road still leads to the state "foreclosure", and the effect of said foreclosure will be identical in just about all respects whether it was forced on you or you "chose" it. As you also note, however, the distinction may make a difference to future providers of credit, insofar as they can figure out to what extent the situation was or was not chosen. (It won't be crystal clear; I suspect that nobody ever really cuts expenditures "to the bone" even when being supervised by a judge.) But to the extent that the lender can figure out whether a borrower was willing to go an extra mile to try and pay off the obligation, it might take it into account as a factor that mitigates risk. Disasters and emergencies happen randomly to everybody, after all, and most folks are never quite sure they're in the middle of a bubble until after it has burst. The question is, did they keep trying after the disaster hit or cut bait quickly? (Please pardon the massively mixed metaphors.)
Tanta: The "hell" I was thinking about was not for fraudsters who bought their homes with credit. I was thinking about legitimate people who put in 5% downpayment to buy a house and their house is 20% underwater now. What do you do? keep paying the mortgage?
Ask the PE shops who bought companies with 20% down and took all the equity away by dividend deal debt and are willing to tank the companies in bankruptcy.
outcome is the same, so why do we care about the motivation?
Not just for modelling, but for purposes of debating legislative initiatives. Don't you think these "foreclosure prevention" things being proposed--moratoria, FHA expansion, etc.--depend on a certain set of assumptions about why loans are failing?
That gets to Tom Lindmark's point. Sure, it matters to everyone whether we're talking about failed speculators trying to socialize the losses or just people caught up in financial distress. I think there are plenty of failed speculators out there, and I sleep fine at night with the idea that they just get foreclosed and we go on with life. On the other hand, if this "walkaway" meme is overstated, it may be leading many people to believe that there aren't enough cases of bona fide financial distress for us to care about, therefore no public policy responses are in order. (I know some poeple think that's never in order, but many of us are truly conflicted about what risk the GSEs, say, or FHA should be taking right now to mitigate some of the pain.)
That said, I'd like to see what happens to some default behavioral models when the Ramseys get fed into it.
I agree that the media meme tends toward "I can pay this mortgage but it's a bad deal so I'm just going to stop." I think that's the (presumed) attitude that upsets people so much.
The press seems to want to use "no contact" as evidence of ruthless "I just don't want to pay" walkaways. A lot of the media accounts I read of people losing their homes use the phrase "walking away" when it's pretty clear the owner couldn't pay if he or she wanted to. Sometimes the homeowner even uses the phrase. You're absolutely right to point out the sense of autonomy this gives people. My point is that by giving up on the process, and severing contact with the lender or collector, they're walking away not just from the home, but from the dragging out of their failure.
For the record, I'm neither satisfied nor dissatisfied with any particular collection process; I've never attempted any or been subject to any myself. I understand there are plenty of laws in place to protect debtors. I'm trying to get at the psychology of those who go the "no contact" route. Perhaps I am being too sentimental.
BG, of course it makes a difference. My whole point with trying to get a grip on this "walkaway" thing is to warn people who do think about walking away from a debt they can pay that they're putting themselves at some risk of getting credit in the future.
Absolutely the thing you want to do is what the Ramseys did: turn over your paystubs, tax returns, and bank statements, and keep a copy of all correspondence between you and the servicer. If you end up in foreclosure anyway, after your best efforts to work something out, at least you have a file folder full of stuff to bring in some day if you ever want a new loan. It really does matter to lenders to see stuff like that.
Sadly, if you can't submit documents showing you worked with the lender and documented your financial hardship, the new lender is likely to conclude that, well, you were one of those "walk aways." And I have no idea why anyone thinks any reputable lender would ever want to make a new loan to someone who really did "just walk away" from his last one. (You could possibly get somewhere with some hard money shark, but haven't we learned that's a bad idea?)
All underwriters have seen this before, btw. You get someone with a relatively recent BK or FC who wants to buy again. You ask for an explanation, and you get this story about a job loss or an illness or whatever (loan officers are very good at suggesting stories that us underwriters are generally sympathetic to). So then the underwriter asks for your tax return from that period, or copies of your medical bills, or copies of correspondence with your servicer, the underwriter gets . . . crickets.
Those few borrowers who do indeed bring in that file very often get a cooperative underwriter. We all know what "extenuating circumstances" are.
I'm trying to get at the psychology of those who go the "no contact" route. Perhaps I am being too sentimental.
I've actually been accused of being "sentimental" about no-contact borrowers, so we're probably on the same page here.
In my experience most of them are so depressed and embarrassed and miserable--when in fact the phone hasn't been disconnected--that they just can't face taking the lender's calls. To assume that a "no contact" borrower is "ruthless" is, in my view, idiotic. If it were me, I'd probably be under the bed in a fetal position myself. Anyway, the really "ruthless" borrowers tend to take your call and tell you to fuck off. Any collector can tell you stories about that.
That's actually the best argument for the whole "Hope Now" hoopla. I don't think the proposed modification process helped much, but the public campaign to convince people that there really is maybe a reason to talk to the lender--that it isn't necessarily hopeless--is important. As I said, you might still lose your home, but a deed-in-lieu or a short sale is better for you in the long run than just turning off the phone and ending up with FC on your record.
Inventory piling up and nothing selling in my area of Chicago, same stuff that did not sell last year. Attempts to rent this stuff is mixed, saw first big development go into forclure and expect there will be more. In this market, the carnage is coming and whether folks walk or whatever is purely academic.
I don't think everyone (the press, blogs, readers) has bought into the meme that it only those who can afford a payment but chose not to pay based upon LTV.
I think most people think it just means leaving the house whether or not you can afford it.
Most everyone knows there is some "process" to losing a house (shortsale, BK, forclosure..whatever). Most however know little about what is involved etc, but the do know there is some process.
Walkaway to most people just means refusal to go through any process and just leave the keys and let the bank handle what may come.
Walkaway's motivation is important mostly because suddenly predicting how many home loans will default depends less on objective mathmatical methods, and more on subject emotional market psychology factors. Like the stock market proves...this is very hard to predict.
Don't you think the so-called walking away is limited to investors or flippers who were never going to live there anyway?
I think it's mostly that--overwhelmingly majority that.
I do think there are a few cases of "buyers remorse" in there--people who just regret having bought too much house, and who are naive enough to think you really can just mail the keys "back to" the bank (from whom you did not buy it, but if these folks weren't naive they wouldn't have paid that much for these houses and agreed to that much payment in the first place). A lot of these folks are hard to distinguish from speculators: they might occupy the property, but they bought it only because they thought they'd make money selling it someday.
However. While the number of such "buyers remorse" cases that we have today may be much larger than the historical "norm," given we did go through such a mania, this kind of defaulting borrower isn't really unheard of. There were plenty of them in the last few years; it was just that when the prices were still there they could sell. Many did. But they never got picked up in the statistics of "loan failures" because they weren't FCs. Used to drive me nuts--those stupid articles I used to bitch about from the Happy Economists arguing that "most" subprime borrowers (remember, it was just a subprime thing at the time) were "successful." Yet they never went through the numbers to see how many were still homeowners two years later--they just counted actual FCs.
The media never noticed the number of "new" homeowners who bailed out in a year or two because the payments were crushing and homeownership wasn't the cloud nine it was cracked up to be. So now, when those folks are showing up as FCs instead of "prepayments," we have to invent some "new" category for them.
One of the elements of the boom that was played up pretty hard in the press was the purported increase in people who bought homes as rental investments and not for their personal use.
It seems likely that, in playing up the concept of walkaways, "the press" believes that it is simply continuing that story line without making it clear to their readers (after all, editors are notorious for cutting out what they believe to be extraneous words in order to save on the cost of news print).
However, as Tanta points out, it seems likely that many of those "investors" may have committed fraud by failing to state on the mortgage application that the buyer was not going to use the property as their primary residence.
There is a huge difference in psychology between losing your home, and losing an investment property; and a huge difference as well in the public's response to each of these - we'll likely feel more like helping a family that is losing it's home, and much less like helping a foolish investor.
I've had the opportunity to talk to some people who work with people in default and foreclosure. They tell me that, in many cases, the people seem to just freeze like the deer in the headlights when they see that financial disaster is bearing down on them. By the time they go to somebody (non-profit agency, short sale specialist at the local realty office, their own lender etc.) they are to the point where it's almost impossible to help them.
The short sale people tell me they regularly get calls from people saying, "I need you to sell my house right away!"
Walkaway's motivation is important mostly because suddenly predicting how many home loans will default depends less on objective mathmatical methods, and more on subject emotional market psychology factors.
I'm beginning to see why I'm talking at cross-purposes with a lot of people.
The overwhelming majority of foreclosures are uncontested. It has always been that way. This is not new. It may be new to people who haven't really been exposed to the process before.
I can assure you that the people building default models do not concern themselves with the "difference" between a borrower who just vacates the property and is foreclosed in absentia and those who get caught by the process server on the way to the Rite Aid, because they haven't found a place to move to yet. It doesn't matter to the servicer. (It does matter to model the number of evictions or bitterly contested FCs you might get, since those cost you more. But most FCs do not require legal eviction or months of court fight.)
Default models just look at prices, LTVs, debt levels, employment, etc. And their predictions based on those variables are not wrong because they don't worry about how borrowers subjectively think they are "walking away" or "being foreclosed." An unconstested FC is an uncontested FC to the servicer: it doesn't matter why the borrower did not contest. I don't doubt some borrowers fail to contest because they think the Rapture is going to happen next Thursday at 6:00 pm. I wouldn't plug that kind of "psychology" into my model either.
The only "psychology" that matters to a modeler is to find out how many Ramseys there are out there: those whose psychology dictates that they cooperate with the servicer as much as possible to avoid FC. That helps the servicer decide what resources to devote to workouts. Otherwise, though, the models aren't really interested in the stories we tell ourselves in order to make ourselves feel better. Psychologists and novelists might be, but servicers aren't.
OK, well, and the politicians are, because telling ourselves comforting stories is something they specialize in.
On top the psychology of walking away, I think there's a similar psychology for people who bought around 2005 and are trying to sell or are just feeling screwed. I read recently that a lot of deals have been broken because the sellers quibbled over a few thousand dollars. It is a miserable feeling to be on both sides of a transaction and never being the side that sets the terms and value of the item being bought and sold. I suspect that's why a lot of people are still holding out for top dollar when selling. Especially when, in a rising market, sellers made few compromises even when they were raking in a huge profit -- or if the owners put in upgrades expecting it to amount to more value. They don't want to accept the position where the other person is setting the price. And they don't like being in that position both in buying and selling.
We bought in 2005 and just sold last month. It was a huge blow when the buyer offered an unflexible price $25k below asking price (and we were already priced below the average home.) And then it was a second blow when they requested we spend another $1300 to bring the stove up to code. It was a blow because when we bought in '05 the seller was not willing to spend that for us, even though they were raking in a huge profit.
They tell me that, in many cases, the people seem to just freeze like the deer in the headlights when they see that financial disaster is bearing down on them.
That is what I have heard from every default servicing specialist I have ever talked to. I fully believe it.
The short sale people tell me they regularly get calls from people saying, "I need you to sell my house right away!"
I hadn't heard that one yet. I have heard "I need you to send the superintendent over to fix the water heater," though. First-time homebuyers. Steep learning curve.
It is a miserable feeling to be on both sides of a transaction and never being the side that sets the terms and value of the item being bought and sold.
Excellent point. If your only experience of "how sellers get to behave" is what you experienced when you bought at the height of the boom, not only does it feel like a ripoff to have to get dictated to, but it means that these folks just entered the process of selling the home at the wrong psychological place, and often don't let reality sink in until it's way too late. I sympathize with your experience, but congrats to you for accepting the facts sooner rather than later.
Perhaps there are some people who, unable to accept having to act like a "buyer" now that they're the "seller," are consciously or not trying to force the lender to be their "desperate buyer" in the absence of any actual desperate buyers. That would explain a lot of the weird expectations people have about what kind of bad deals they can get their lenders to accept.
It is a miserable feeling to be on both sides of a transaction and never being the side that sets the terms and value of the item being bought and sold.
If it makes you feel any better, you did have some part in the setting of the terms: you accepted them. It takes two to make a deal and you made a decision of what the deal was worth to you.
To a ruthless deal maker, if the other party accepts your first offer, then the price must have been wrong. Is that the way you want to live your life?
I have always thought, when we talk about "walking away", that there is some presumption that they have actually "walked" somewhere. When the sheriff comes on that fateful day, is the house empty?
So the distinction for me is that walk-aways recognize that either they can't make it work or they don't want to make it work, and they act. A walk-away must (1) initiate the sequence of events that lead to foreclosure and (2) they actually move on. If you just wait to see how long the bank takes to kick you out once you stop sending in payments, you're not really a walk-away.
This is why the "you can't fire me, I quit!" metaphor doesn't work quite well - people who physically move on (the stereotype of packing it up in a UHaul in the middle of the night) - are in a different posture. Those people are quitting when they think there might be a pink slip in their future.
Legally, the distinction is between a preemptive breach and merely failing to perform.
Now, I agree entirely that some people may, when the bank starts to foreclose, decide that they're not getting foreclosed, they're "walking away" - because it makes them feel like they're more in control. And that is, I agree, a "you can't fire me, I quit" scenario - just lipstick on the pig. It still won't be fun to kiss.
True, in the end, both situations lead to foreclosure. But isn't there a difference between furtive UHaulers and people having their stuff thrown out on the front lawn?
But isn't there a difference between furtive UHaulers and people having their stuff thrown out on the front lawn?
To a servicer, your "furtive UHauler" saves a few hundred bucks in eviction costs. That's the only difference.
The sheriff does not "come on that fateful day."
The actual FC sale is held on the courthouse steps. Whether the property is currently occupied or not.
The sheriff only shows up to evict you, after the sale, if you do not vacate on or before the sale date.
You have the legal right to occupy the home until the sale date. Until the sale date it belongs to you. Why would anyone move before they have to, unless they found a good job elsewhere or got a special deal on the U-Haul? The whole reason servicers offer the "cash for keys" thing to borrowers in FC is that the servicer incurs less cost if you vacate before the FC sale.
I don't see what occupancy of the property has to do with this any more than "no contact" has to do with it. But if your definition of a walkaway is someone who vacates immediately and saves the servicer a couple hundred bucks in eviction costs, well, then, servicers would be praying for "walkaways" instead of worrying about them.
If Litton is involved there's most likely more to the story. Take a look at past and present litigation involving Litton sometime...
"trouble getting hold of anyone with decision-making authority."
Classic Mortgage Servicing Fraud tactic. Stall until you can get the late fees racked up and the FC notice filed. Granted, the Ramseys very legitimately may not have been able to afford the payments on their loan. That's an issue that needs to be looked at with regard to who made the loan in the first place.
But the fact that they were dealing with Litton and couldn't get anyone to talk to them until they got a third party advocate involved makes me want to see what Litton was getting as "additional servicing compensation" per the PSA for whatever trust the Ramsey loan was bundled into. I'll bet that Litton, at the very least was pocketing late fees. IF such was the case, then Litton had absolutely zero incentive to even attempt to modify the loan. If the Ramseys hadn't found someone who knew what they were talking about to advocate for them Litton would have just kept ignoring them until the foreclosure was finalized and the auction over and done with.
Diane Cipollone is all too familiar with Mortgage Servicing Fraud as she fielded hundreds, if not thousands, of calls from homeowners across the country back in '03-'04 at the Baltimore Community Law Center when Fairbanks Capital, n/k/a Select Portfolio Servicing, was on everyone's radar. Of course Litton would have returned her phone call. They would have been stupid not to.
I should note that states differ on eviction laws. There are places in the country where you can't get a judge to sign an eviction order until 30 days after the FC date anyway. The servicer still demands that you vacate on or before the sale date, but they just can't use the physical coercive powers of the police to make you do it then, in some jurisdictions.
Every servicer hates evictions because it's another step, another expense, and frankly more bad publicity. (Nobody likes the pictures in the paper of people's stuff on the curb. Especially when it's snowing. Even the Evile Cynical servicers are astute enough to hate that.)
In any case, there is no jurisdiction I know of in which a lender can evict anyone until they've taken title to the property. Even in states where the law does not explicitly give the defaulted borrower all rights of occupancy until the sale date, precedent and common law does. Possession being nine-tenths and all that.
The problem with modeling is that we are seeing situations that just didn't happen before. We are seeing people who are underwater more than their annual income with no reasonable prospect for recovery. That's always been a rarity before, even in the oil patch collapse. It's just one more thing making the distinction between "walking away" and "being foreclosed on" hopelessly fuzzy. It's in the borrower's mental state to start with, so it's hard to measure; it's a continuum rather than a bright line; and now we can't even compare to historical measures because the buyers are in unprecedented straights
"Excellent point. If your only experience of "how sellers get to behave" is what you experienced when you bought at the height of the boom, not only does it feel like a ripoff to have to get dictated to, but it means that these folks just entered the process of selling the home at the wrong psychological place, and often don't let reality sink in until it's way too late. I sympathize with your experience, but congrats to you for accepting the facts sooner rather than later."
Tanta, we are totally glad we got out when we did! Better to take a $30k loss now than a $70k + loss later. We were very fortunate to be able to swallow the loss, and to be in situation now where we don't have to pay rent --so we can save money for the right house at the right price. But the whole selling experience made me feel like we were being asked to bend over and take it twice. At the same time we knew prices were going to fall and had every expectation to take advantage of that fall in the next few years. I feel for others who were in our situation. We were newly married and had our first baby in '05 and it just seemed like the right time of our lives to own, even though we knew homes were overpriced.
There were a lot of lessons learned from this: the virtue of patience, owning our own mistakes, knowing when to take a loss and move on, etc.
Why would anyone move before they have to, unless they found a good job elsewhere or got a special deal on the U-Haul?
I've pondered this myself, having heard all these stories of people packing up in the middle of the night. I suppose all those stories could be dramatizations of the truth...
I don't see what occupancy of the property has to do with this any more than "no contact" has to do with it. .
If you're still an occupant, you haven't walked away. I think my point was, the term is not a function of one's legal or financial status - the term is a function of your geographic status. Which, admittedly, isn't particularly relevant, but then, I didn't coin the term.
I am with Tanta on the walkaways. I think more people than we realize will pay on an upsidedown loan as long as they can AFFORD the payment. Those who say they can afford it but chose to walkaway...I would guess that "afford" would be subjective, and that may include...if they choose to not eat.
Right now other cost (of being upside down on a mortgage) are not as completely evident. As inflation strains and tightens budgets, many of these bubble-created faux-communities will start decaying faster than the nations highway systems. I think as job insecurity grows, health and education costs get higher, and tax revenue shortfalls lead to less police and higher crime, the cost benefits of "walking away" from an over-under house in Resada, Bethesda, San Jose, Alexandria, Charlotte. etc. start to become more obvious.
Many will "walk away" from or "voluntarily decide to stop paying their mortgage" because it will become unmistakenly obvious that they can have a better life renting a cheaper, bigger, safer, _____er house. Walking away is smart money right now - the full effects of this phenomenon are only just begining.
FatalException, this is why people like me believe that what the term "walkaway" is trying to get at is, specifically, people who could pay the mortgage, but just don't want to.
It has nothing to do with literally vacating the property. Even in legal evictions, 99.9% of borrowers walk out the door on their own. I haven't heard of someone having to be carried out by the deputies in years. (Yeah, every now and then you literally have to pry people away from their homes. Those cases are nightmares and they are mercifully rare. But this happens in apartment evictions as often as it does in FC evictions. There are very very stubborn people out there in this world from time to time.)
But there are all kinds of reasons for the middle of the night UHaul. Mostly, it's people who don't want to be humiliated in front of the neighbors. Or don't want their kids to be exposed to that. Who could blame them?
I think the reason some blogs/media stories make a big deal over people "staying in the house until they're kicked out" is that it pisses them off morally, as if the least these people could do is leave the home as soon as the first payment is 30 days late. The implication is that people are "trying to live rent-free." Well, of course they are. If they are hardship cases who are in a financial bind, why would they start paying rent months before they have to? If they are getting advice from someone to vacate immediately, they're getting screwed. You have the legal right to occupy until the FC is completed, and if you're broke, take advantage of it! If the servicer offers you decent cash for your keys, take it without looking back! I see no reason for people to add to their own financial misery to make snotty bloggers happy.
If you're perfectly capable of making your payment but decide to withhold it, hoping that it will take months and months for the servicer to FC and then evict you, well, you're a "walkaway," but that's because you could pay and choose not to. You "walked away" from the post office where you should have been mailing your payment. These folks will end up "walking away" from the house eventually. Insofar as they exist and aren't mostly urban legends.
The term just has to be a "function of your financial status," because otherwise it doesn't make any sense.
Otherwise, who takes the hit from the fact that each month, there is 5% less interest coming in due to the lower interest rate?
The juniormost bond does (unless there's still overcollateralization left to blow through). The same juniormost bond who would take the write-down if the servicer foreclosed and had to write off a giant chunk of principal.
If you work out a modification with the lender, does that show on your credit report?
I have never seen a modification as such on a credit report.
If you were delinquent before the modification took place, those late payments will show for seven years unless you get the servicer to agree to take them off. I have never worked for a servicer who would agree to do that unless the agreement was that they'd report the loan as current only after the first 12 payments on the modified loan were made on time. Carrot thingy.
Thx Sarah!
sdtfs - full fathom five?
Am reading the Compleat UberNerd, so I can follow the discussion here better. The prose is almost as good as Newman. As for subject matter, uh, well...
"... the pure mind / Arose toward Newman as the whiskey warmed."
--Who is the greatest writer, Dedalus?
--Of prose you mean?
--Yes.
--Newman, I think.
Speaking of carrots, If the servicer is the one initiating the mod, then I would think it's safe to say that they continue to report the debt as MOP code 1/"paid as agreed".
7 is supposed to reflect CCCS type workouts, wage-earner plans, that sort of thing. But I could see how they could end up reporting it that way. It might not hurt to ask.
the worst case is that it is reported as a MOP code "7"
Have you been drinking out of bacon dreamz's glass today?
Civilians: MOP is "manner of payment." Code 07 is "paying under wage earner plan or similar arrangement." A "wage earner plan" is frequently known as a garnishment.
I take your point that "The term [walk-away] just has to be a "function of your financial status," because otherwise it doesn't make any sense". But then, I don't accept the notion that the mainstream media reporting necessarily makes sense all the time- nor, I think, do you! - so the question remains what do the journalists mean?
Still, I'm convinced by your point that everyone in these unfortunate circumstances will "walk away" from the home at some time or another... so the geographic explanation is really useful. But I wonder whether the majority of journalists are using this term as a synonym for "ruthless default."
Perhaps the take-away lesson here is that absent a good definition of the term, journalistic coverage of this subject is only so useful as the journalist makes clear what they think term means?
Speaking of carrots, If the servicer is the one initiating the mod, then I would think it's safe to say that they continue to report the debt as MOP code 1/"paid as agreed".
I didn't make myself very clear, there, did I? (Don't know whose glass I've been drinking out of . . .)
The last time I documented servicer policy, the modified loan was reported as "paid as agreed" with the first post-modification payment. However, the historical pre-mod delinquencies remained on the report. Only forbearance or repayment plan borrowers were reported as 07. But it has been a while since my wrinkled reptilian snout had to be stuck into that kind of thing.
From time to time, you get people asking to remove the reporting of the historical delinquencies as part of the modification agreement. I have encountered servicers who will agree to do that only after 12 consecutive on-time post-mod payments were made. So they're re-write history for you, maybe, but only after you've performed on the mod.
I would personally never agree to remove historical delinquencies from a credit report for any borrower without some kind of contingency like that. But then I'm generally opposed to creditors who agree to drop valid derogs just to get a problem off their own backs--it means dumping on the next creditor who innocently relies on that credit report to disclose the borrower's true history.
But I wonder whether the majority of journalists are using this term as a synonym for "ruthless default."
As far as I can tell, many do mean that phenomenon we insiders would call "ruthless default." But like many of our commenters, they can't accept either "ruthless" or "default" for this behavior, because they want to believe that the mortgage contract gives borrowers the option to "give the house back to the bank." If you believe that, then you do not think you are "defaulting," let alone that you're being "ruthless." Some of us beg to differ, but that's why we're shills for Countrywide.
The rest of it is just reporters who use it as a synonym for "foreclosure," as far as I can tell. I have no idea what they mean by it. I find that casual usage of the term as puzzling as Mrs. Ramsey tendering a short sale in order to keep from losing her home. At some point the words just don't mean anything very precise.
This is probably academic considering the Hope Now modification queue-crowd. For these d00ds, a tradeline going from M05 to M07 is the credit report equivalent of a runaway shopping cart dinging the side of their 1986 Plymouth Sundance.
Still, I think the likely scenrio is "if you keep current under this mod plan, and we won't ding you on the credit report".
Tanta takes the perspective of a bank mortgage loan officer so she is in the camp of the lenders basically and is critical of buyers stuck in an artificially inflated RE price structure. The appraisals on the bubble properties were bogus. That fact alone should exonerate upside down buyers. Then there were the exploding exotic loans that buyers were sold on by commission happy mortgage reps(salespersons).
Then the banks gambled trillion$ on mortgage debt derivatives with depositors' savings.
The builders were building cheapo stucco styrofoam homes that leak. The Executive Branch and the private Federal Reserve cartel were encouring and touting garbage loans and subpar homes to buy.
The builders were hiring illegals. The media was touting 'home ownership'. The system became toxic and you side with lenders who will get these homes for computer debt entries. The banks will be left with physical assets for loaning fractional reserve, taxpayer guarantied fiat money.
As bad as some powerless sheeple(all of us down here) are, I'd rather side with the public in most cases even the 'amateur' investors who bought flipping books over the corrupted finance RE system that was 'allowed' to go crooked!
The lenders will consolidate their market share and small to medium businesses will be bankrupted. Why be a cheerleader and gatekeeper for this wealth transfer from the bottom to the top?
For these d00ds, a tradeline going from M05 to M07 is the credit report equivalent of a runaway shopping cart dinging the side of their 1986 Plymouth Sundance.
Good one. I might have said "Gremlin," but we all have our fond memories of 80s cars.
I supposed the question was motivated by the concern over whether people could get a mod and still "keep" their nice pretty dingless perfect pristine sacred credit histories.
But I don't remember appraisals ever coming with a guarantee that "this assent may not lose value".
They are, by definition, an estimate of a value at a given point in time. Kind of like my autographed 8x10 of Rob and Fab ain't worth as much now, but I'm not holding Artista responsible.
Tanta takes the perspective of a bank mortgage loan officer so she is in the camp of the lenders basically
Yep. That's me. Tanta the loan officer.
Bite me. I didn't spend years giving of my own time and expertise to try to convince people that RE was in a bubble, that these toxic mortgages were a bad idea, and that "now" was a terrible time to buy just so I could turn around and shill for the industry when the shit hit the fan. Jeebus. If I really did want to be a loan officer (gag), I could make a fortune off you people. Even today, in this cruddy environment. If you're that passive and unable to resist the blandishments of advertising and bullshit from NAR, then I could take you to the freakin' cleaners.
As Shnaps noted above on this comment thread, there were, in fact, some people telling you that it was a bubble and warning you about those appraisals and all that. Like, well, this blog.
So go tell it to the Marines. You don't get to call me a cheerleader for the industry just because I was right about most of this stuff before it was obvious to some other people we could name. You also don't get to call me a cheerleader for the industry because I don't get down with the idea that the RE bust should be used as an excuse to ratchet up the victimhood rhetoric and get people to buy into reactionary political and economic theories that couldn't get a hearing any other time.
Personally, I'd say the AMC Pacer was the high point of that era. That, or the Pinto...
The Pacer was certainly a horror.
But, you know, the Pinto was a 70s thing. Just like my old '74 Maverick. My old snot green Maverick with the black-and-chartreuse-houndstooth-check uphostery. That was worth one out of every two of the two hundred dollars I paid for it in 1980.
OK Tanta but I won't bite you. You have some valuable info to offer. But if you think forcing buyers to stay in an upside down asset continuing to lose value every month as the economy gets worse and unemployment rises, etc. is correct & THE (Moral) ANSWER...well these buyers in overpriced houses will go under later IMO and we are just delaying the Great Reckoning. Try and think macro.
Ruthless applies to the Federal Reserve, Executive Branch, Congress, international bankers, etc., or if you're not the suspicious type...maybe all these entities are 'clueless'.
Appraisers were paid to 'hit the mark' and had to play to be hired. Buyers were pumped with Fear advertising strategies to Buy Now or forever be a Loser Renter.
People are walking from their upside down autos too. You can't stop the survival by taking the moral high ground. If people get hungry enough they will steal. You'd say that was deplorable too I'd guess.
People got sick of renting and thought buying would be worth a shot. I don't think a lot of the buyers even the 'investors' had sinister intent or moral depravity at their core. People want to improve their lives as we are taught from birth in this Great Nation of workers and consumers.
Sure there's a few bad apples. The bad apples at the top of the food chain or pecking order is what really concerns me as this collapse unfolds. Check it out.
It's a terrible time to buy now and it'll be a terrible time to buy in a year or two. That's because we live in a ridiculous boom/bust bubble/crash economy that is what...simply random or fate or just bad luck & timing. Eyes wide shut and Away!!!!
Tanta sez: Part of the "hell" that will break loose is that servicers will start doing judicial FCs and pursuing those deficiency judgments and making criminal referrals for fraudulent loan applications.
BWAHAHAHAHAHAHA! I love you, Tanta - but the banks and company are in for a rude awakening at the court house door. The local courts are already jammed because of underfunding and an exploding criminal caseload (which always gets priority) in a deteriorating economy. They'll be lucky to get a court date within a year.
Prosector's offices are just barely keeping up, and if you think they are going balls to the wall on income fraud because mortage originators were too busy spending their annual bonuses to actually to their job, well then I got a no doc option ARM mortgage on some Florida coastline to sell you.
Actually, the thing from the article that struck me the most was this:
"The answer was three months. In June 2007, she contacted Countrywide. According to Collins, Countrywide told her she did not qualify for a workout because she was not yet behind on her payments. She kept calling and spoke to many people in different departments. "They would say, 'I'll look into it,' and then I'd get the same response." "
In other words, a borrower in trouble, who KNEW she was in trouble, contacted the lender EARLY and OFTEN and got the runaround. If I were in loss-mit, I would be screaming blue murder at people after hearing about this. Seriously.
Take both "the guest"s and Zarley's advice. Think more macro. You area of expertise is too narrow. Not that it is not valuable, it is. But I wholeheartedly agree you need to look at a macro perspective as well as a historical perspective. Guest is mostly right that most of the people caught up in this mess are good people who were and are trying to better their lives the way our culture and system has brainwashed them to do.
Understand that your perspective on lending is too negative and self defeating ON A MACRO LEVEL. Too much optimism is bad. Too much pessimism might be worse....
How many people end up "walking away" simply because they've tried to contact the lender, gotten the run-around, shuttled from department to department, "sorry, we can't help you", tried to re-negotiate in good faith, and gotten zero for their results?
Remember, it used to be that although it was harder to get a mortgage from a bank, they also were much more willing to help out when problems were on the horizon. Now, the argument seems to be "well, we can't help you out because we securitized your loan and mushed it together with a whole bunch of other loans and we'd have to negotiate with 100 different entities we sold all this stuff to, and that's too much of a hassle, so no, we're not going to help you out one tiny bit."
Add to this a background of watching companies "walk away" from pension responsibilities for their employees, blithely ignore the plummeting value of the company while shelling out multi-million dollar packages to its CEO, whine to the government for help and get financial assistance because "they're too big to fail", and you can see why people might get pissed enough to just take off and send the keys in.
Somehow it seems that if the Ramseys had simply been able to get a decent market rate at the time of purchase this entire saga wouldn't have happened. 7% was, and is, affordable. 10.2%-12% was not. And being happy with a workout that seems to leave them that far underwater suggests that they were extremely willing to pay their debts, which you've described as the "character" part of the 3Cs.
I might be missing something, but it seems to me this almost-foreclosure qualifies as "unnecessary".
It's the bottom of the thread, but after psychoanalyzing the Ramseys, isn't it obvious that it is all about the monthly payment? They like their home, they were ok with the $2k payment, but couldn't shoulder $3k. They may have been renting an apartment for $1200-$1500/month, and the $2k for the initial mortgage seemed reasonable for something that got them out of a rental and into something nicer.
$300k @ 7% is the same to them as $200@10.5% (or whatever the exact number is). Underwater is something that doesn't enter into it unless they need to sell.
In fact, the monthly payment psychology seems to be regularly underestimated in looking at the whole mess.
Along with this rather too obvious observation, the following:
OMAHA, Neb. (MarketWatch) -- Berkshire Hathaway has bought portfolios of subprime mortgages and has frozen resets that were due to send the interest rate on those home loans higher, Chairman Warren Buffett said on Sunday.
Clayton Homes, which makes and provides financing on manufactured homes, purchased these subprime mortgages and sent letters out to all the borrowers involved telling them the interest rates will not be reset higher, Buffett explained.
That's even though the contracts allow Clayton to increase the interest rates on these loans, the rates won't change, he added.
"We're not in the business of resetting mortgages higher," Buffett said. Clayton is a unit of Berkshire
S'Ok...I liked the article quote about Buffet. Lots of loans got made to people who shouldn't have gotten them, but it seems bad loans also got made to people who should have been treated better. If there's a way to make money by distinguishing the two groups then so much the better.
"They are, in their own way, just as "ruthless" as the so-called walkers-away"
Exactly so. It was their loss, their poor choices... but they felt somebody should concede something to them, 'share' with them. It is a pretty general American attitude these days. Everybody gets do-overs.
What is the over/under on the number of people who miss the point of the post?
Negotiating a better deal is ruthless? Why is it only OK for Corporations to redo their deals in the middle? (I am looking at you BofA)
The bank didn't have to agree to the deal. I read the article this weekend and believe me the banks are so clueless at this point they could have stayed a year without paying, then walked. That's ruthless.
Is it ruthless to lend money to people so close to the edge they are assured of failure? Is it ruthless to lend money at exhorbitant rates because people are desperate? Why is ruthless good if you are a company but bad if you are an individual?
...Servicers keep going on about a "sea change" in borrower attitudes about foreclosure. I just don't see that.
I would 2nd that assessment. There's probably less of a stigma if someone can conclude "I'm losing my house because of the economey" not "I'm losing my house because I can't make my payment". The end result is still a default due to inability to pay.
I think the semantic distinction Tanta is making is very important. So far, I have seen virtually zero documented evidence that Joe Homeowner has done the math, made the computations, and realizes, "Honey, no matter how we cut our expenses, we're sinking. Our smartest move is to move out. Oh well, so long house." Instead, various nastygrams from their lender seem to be the proximate cause of this realization.
The analogy I would draw would be Joe Homeowner 'walking away' the same as 'Mission Accomplished'. You can call it what you want, but the facts on the ground indicate that others (Iraqis and mortgagors) are calling the shots.
I'm still trying to absorb that "not losing the house by going the short-sale route" notion.
"The heart has its reasons that the reason does not know."--Blaise Pascal
☺☺"Why is ruthless good if you are a company but bad if you are an individual?"--Hmmmmm | 05.05.08 - 9:47 am | #
It's called divine right. As Jacques Barzun explains: "...if he (the king) does govern badly and the people suffer, it is because they have sinned and are being punished."
Tanta,
Perhaps you can explain the couple that have formed a mutual support group to justify their financial troubles: Local couple starts a group to aid others in same straits» Ventura County Star
Their website: Moving Forward · Foreclosure Support Group
Moving Forward was created by Newbury Park homeowners who are losing their house to foreclosure. By bringing distressed homeowners together, we hope to ease the negative emotions that come along with foreclosure.
Perhaps you can explain the couple that have formed a mutual support group to justify their financial troubles:
That's just what Americans--and especially our dear Californians--do.
There are support groups for survivors of every known human experience. Why should FC be any different?
If that's the kind of thing that floats your boat, why should I approve or disapprove or even have an opinion? Given that my own personal response to the situation, had it been me, would have been to buy a couple packs of cigarettes and a case of cheap wine and oblivate myself, I can't say forming a support group is anything to frown on.
Why is it only OK for Corporations to redo their deals in the middle?
hmmm. good question. must be a riddle.
--Are you good at riddles?
Stephen answered:
--Not very good.
Then he said:
--Can you answer me this one? Why is the county Kildare like the leg of a fellow's breeches?
Interesting: "You can't fire me, I quit!"
I see that happen every once in a while even though the severence from a firing can be pretty good, while quitting yields nothing.
Makes me wonder if some country music singer is going to write a little ditty a la Johnny Paycheck, "Take this deed and shove it, I ain't livin' here no more?"
Interesting: "You can't fire me, I quit!"
That, in a nutshell, is why I just fail to understand people who keep wanting to make a distinction between "walking away" and "getting foreclosed." You are exactly correct that it's the same thing as "quitting" after you've been put on probation, if not fired outright.
But people do want to tell the next prospective employer that they quit, they didn't get fired. That's what makes the walk-away thing so ludicrous to me. One of these days these folks will want credit again, and they'll find out that the lender might accept them if they were "fired," but isn't likely to be interested in them if they "quit."
interesting juxtapositon to bank of america's possible walk away from the country wide deal or at least it's debt
not saying pro or con about either option, just interesting juxtapostion between corporation and human individual
I'm still choking on the first example. Giving Ms. Johnson a 4% 30 year fixed (YES FIXED) loan is huge moral hazard reward for someone who was so irresponsible. Where is my 4% 30 year fixed moral hazard reward? Of course I don't qualify for the tax rebate nor have I ever gotten my white privilege either. I guess I'm just destined to work hard, saving my ever shrinking wages and being burdened with prime lending rates and sub-prime saving rates.
Negotiating a better deal is ruthless?
You're getting hung up on the word "ruthless."
I have no particular beef with negotiating with lenders, although if you just "want a better deal," you need to go talk to someone about this thing we call "refinance."
In these workout situations, it isn't "getting a better deal." It's getting some compromise that keeps the loan out of FC. I am not now and have never been saying there's anything wrong with that.
But I simply think people need to be clear about what their "negotiating position" is. If it's "you reduce my payment/debt/interest rate or I default on every covenant of my contract with you," you aren't "negotiating," you're threatening. I really don't see why "ruthless" is the wrong word for that. One needn't get all righteous and moralistic about it; on the other hand, I see no reason not to call a garden implement a garden implement.
And it's as true of corporations as of individuals. I am also not interested in the psychological dodge that says well, corporations do it, so it's perfectly OK if individuals do it.
The Ramseys were clearly unable to afford the reset payment on their loan, and they got a reasonable deal from Litton--and they were willing to pay $3000 of the "forgiven" past-due amount to get it, which is rather more than most borrowers do. I'm not trying to make them into terrible people.
I simply note that they were willing to propose that Litton take a $100,000 loss on a short sale. Do they actually believe that this house is worth only $200,000? Why then were they so enthusiastic about getting their loan modified down to $302,000?
I am with Tanta on the walkaways. I think more people than we realize will pay on an upsidedown loan as long as they can AFFORD the payment. Those who say they can afford it but chose to walkaway...I would guess that "afford" would be subjective, and that may include...if they choose to not eat.
But one area that a coworker explored was buying another house that they actually want and walkaway from their current condo. They overbought but stayed within their means. They paid 290K for a condo which is worth 190K now. They can afford a 400-450K loan and want a bigger home as their children grow. They now can afford a 4 bdrm detach with 2car garage and yard. They are thinking about buying it and walking away from the condo. ONce they have their house they won't need their credit. I don't really know if they can pull it off, but if they can legally without much damage except to their fico, then you may have a large category of actual walkaways in the future of move-up buyers.
I really like Tanta's analysis and the "You can't fire me, I quit" analogy.
I know a young couple who I'd guess are close to a quarter-million dollars underwater. This in an area where median household income is $45K. These two are bright and honest, yet I've been somewhat surprised that they "hang in there" with relatively enormous negative equity. Likely it is a mix of the ethics of borrowing and re-paying and reluctance to acknowledge defeat/error. But when the social norm changes and their friends have walked, it will be interesting to see if they follow suit.
People do not want their credit ratings killed and they like to live in "houses" - This seems to be the main reason for not many walkaways.
I bet if people find a way to buy a lower priced/right sized mortgaged house before they walkaway from their UPSIDE DOWN mortgage house - then all hell will break loose.
The article said the rate was fixed for 3 years on the original mortgage. Then they said the payment jumped last year which is 2 years after the mortgage was taken out. Another case of investigative journalism with no investigation!
I bet if people find a way to buy a lower priced/right sized mortgaged house before they walkaway from their UPSIDE DOWN mortgage house - then all hell will break loose.
I will only observe that people who think lenders/servicers are behaving "ruthlessly" now have no idea what might be in store if what you describe comes to pass.
Part of the "hell" that will break loose is that servicers will start doing judicial FCs and pursuing those deficiency judgments and making criminal referrals for fraudulent loan applications. The only reason they're not doing it much right now is that it's expensive relative to what you get out of it. But that math really would change if the math changes--if it gets to the point where it's worth it for lenders to make some examples, then I would bet they'd do it. If your scenario came to pass, they'd have every reason to do it.
One thing about the "buy then default" plan that I never see addressed is how these people plan to make sure that the new loan is never sold to the same investor/servicer who holds the old loan.
The article said the rate was fixed for 3 years on the original mortgage. Then they said the payment jumped last year which is 2 years after the mortgage was taken out.
I think that was just an awkward way of describing a 2/28 with a 3.00% first adjustment cap and 1.50% semi-annual caps. Such a loan could, in theory, increase by 6.00% within three years: 3.00% after two years, another 1.50% in six months, another 1.50% by the third anniversary.
Tanta-- I think "walking away" as a concept has two different meanings/connotations--one camp thinks people are walking away from their responsibilities, the other thinks they are walking away from the grief and hassle of six, eight, ten, twelve months of enduring lenders and collectors trying to squeeze blood from a stone. If the financial reality is that you can't afford your payment, and are going to be foreclosed on, and your lender won't talk to you, "walking away" isn't so much a financial decision (you're screwed either way) but simply a way to avoid endless phone calls and letters reminding you that you are a blight on society, a failure, a bad citizen, possibly a criminal, etc., etc.
And I'm amazed how some people seem to think that the "responsible" thing for people to do when they cannot meet their obligations is to sit there and get yelled at by a bank for the duration of the foreclosure. If you can't meet your financial obligations, the feeling seems to be, you should at least submit quietly to the lengthy shaming process, which will be administered by a soulless corporation that wouldn't know an ethical precept from a 100% financed hole in the ground.
As for distressed borrowers wanting someone to "share" their loss, the lender assumes a share of the responsibility for failed loans when it signs the papers. That's the risk they take, which is supposed to entitle them to a positive return if the risk turns out to be worthwhile. If the bank makes bad choices, hell yes they will share in the loss. Isn't that their business model?
There are two major attitudes towards contracts (including mortgages and mergers).
One is that your promise in a contract is a moral and ethical commitment.
The other is that a contract just sets the starting points for litigation if there's a breach, or for settlement of a threatened breach.
Clearly, the Johnsons, Ramseys, BofA all see things the latter way. So, too, by and large, do the judges that Reagan and Bush I appointed to the federal bench (think Richard Posner), at least in cases involving employers breaching contracts with employees, or strong companies breaking contracts with weaker ones.
America's chickens . . . are coming home!
they would, apparently, have been happy to see their lender take a $100,000-plus loss on a short sale to salve their pride.
Reconcile that with:
"I was willing to do whatever it took so that we didn't lose the house," she said.
and I'm wondering if it wasn't her pride, but just her sense of doing as right as she could, by selling in the acceptable way instead of just abandoning all notions of her commitment.
For some people, I do believe conscience and self esteem is involved here too. If you can get a seller for $200,000, and the bank is willing to take $200,000, well at least you can sleep at night feeling you did your best and didn't try to rip anyone off. If you just walk off, then you feel like a schmuck.
Is that an issue of pride or just basic self-respect? Resolving your conscience for some people is the difference between feeling like an irresponsible loser, and feeling like you failed but you're not a total loser.
Melancholy Korean, you're on a roll! Yesterday Wallace Stevens and today James Joyce. What unknown arts will you set your mind to next?
We will assume it was a 2/28 if it adjusted after 2 years.
So it had a start rate of 6.4% and a margin of around 6.5%. So this loan had to have fully indexed with no caps to get that payment increase. 5.35% LIBOR last year when it reset + 6.5 Margin.
No Caps. Very unusual.
Of course LIBOR is now back down to 2.99% so it would be resetting back down if it hadn't already.
Are you sure there aren't relitters and mortgage brokers involved?
Susan, if I understand you correctly, your definition of "walking away" is just "not answering the phone."
If that's right, then the majority of foreclosures are now, and for some time have been, "walkaways," since "no contact" is reported by servicers in the majority of cases.
There is no reason why any borrower has to put up with months of futile collection calls or any other harrassment. Tell your servicer you cannot pay and will tender deed in lieu. If they won't accept the deed, tell them you have no intention of contesting the FC. Not even the Evile Terrible Very Bad servicers I know of want to waste hundreds of collections department person-hours on you at that point.
If they do, declare BK. That forces the collection efforts to stop.
I do not happen to think that the term "walk away" is being used by the media of late to mean simply uncontested FC or borrowers who screen the servicer's calls. The "meme" definition is that these folks could afford the payment, but just choose to "let the house go" because it's a "losing investment." The old quitting-not-fired thing.
Personally I have my doubts that all these folks can really afford the payment. I think they're like the Ramseys: there's a kind of "psychological" definition of terms here that helps them not feel like financial failures.
I have never advocated aggressive, nasty collections practices, but I wonder from your comment what kind of collections efforts would ever meet with your approval. And I wonder what you expect lenders to do when payments are not made? Just quietly and immediately foreclose with no efforts to collect the debt? Skip the public auction part, and just force you to sell your property privately in some sweetheart deal to some person nominated by the lender, without an auction to establish that the price was the best the market would bear? Those practices are illegal. For good reason. Foreclosure is protracted and public to protect borrowers. Lenders would love to see them become speedy and private, but the public wouldn't.
As I said, any collector who worked for me and who insulted or demeaned a borrower would be shown the door. But would I refuse to engage in any collections efforts with a borrower who did not explictly tell me there was no hope of ever getting payment? Of course not.
and I'm wondering if it wasn't her pride, but just her sense of doing as right as she could
I fully agree that for the Ramseys, maintaining one's pride is, exactly, a matter of doing as right as one can. I'm sorry if I gave the impression that I meant something else. I didn't mean what I guess you think of as "bad" pride--hubris, arrogance, whatever. Self-respect is probably a better term.
Nonetheless, Litton clearly found that offer to be too low. Either the property wasn't marketed properly, in Litton's view, or it was an intentional low-ball offer. Who knows.
My point was simply that if the Ramseys believed it was the best price available, that means they believe their house is only worth $200,000. I guess they are heroes for accepting a workout to 7.00% on $302,000 for it.
If they accepted the workout because they really believe that the house is worth more than $200,000, then . . . they were seriously deluded when they submitted the short sale offer.
Many people are, of course. That's why so many short sale tenders fail. Ask a relitter and they'll tell you it's because the servicers are crazy and incompetent. I do wonder if that's always the case.
I carry the paper on a house that is somewhat under water. The buyer lost her job, and is building another employment strategy.
What should I do? I leave the contract as it is, because I gave them the best financing conditions they will ever get. But I let them stretch out the payments.
The collateral is still there, but I am calculating the foreclosure costs vs the stretching out costs. Bot me and the borrower intend to stretch as long as possible, and the stretching gives us a temporary balance between equivalent rental, foreclosure costs, and likely undershoot in the bottom.
Yes, me and the borrower together watch sales and we try to get at the undershoot and price that in.
Rob Dawg,
If you are forming an association of distressed homeowners, then I suggest you take your aggregate and you negotiate much better deals.
Honestly, I think all this yapping in the press, blogs, etc. about "walking away" is a huge waste of time. I'm a little suprised that this blog spends so much time on the subject as well. Maybe because the readers keep bringing it up?
A walk away is a foreclosure. The outcome is the same, so why do we care about the motivation? The only reason I can figure is that we might fundamentally model the probability of default in a different fashion. Or, maybe we would model the distribution of "loss given default" differently?
A really good article.
What do you think of the position of the Treasury Department, which asserted last week that people who walk away from homes they can afford but have negative equity are "...speculators who do not deserve any government assistance."?
Nice post, Tanta. The psychology's the thing.
Allow me to play devil's advocate for a second, though. There is a clear objective difference between a party that can scrounge up the means to honor an agreement (however painful the adjustments may or may not be) and a party for which this is a physical impossibility no matter what the will.
This distinction may not mean alot in practical terms, at least in the short-run. As you note, in the end the road still leads to the state "foreclosure", and the effect of said foreclosure will be identical in just about all respects whether it was forced on you or you "chose" it. As you also note, however, the distinction may make a difference to future providers of credit, insofar as they can figure out to what extent the situation was or was not chosen. (It won't be crystal clear; I suspect that nobody ever really cuts expenditures "to the bone" even when being supervised by a judge.) But to the extent that the lender can figure out whether a borrower was willing to go an extra mile to try and pay off the obligation, it might take it into account as a factor that mitigates risk. Disasters and emergencies happen randomly to everybody, after all, and most folks are never quite sure they're in the middle of a bubble until after it has burst. The question is, did they keep trying after the disaster hit or cut bait quickly? (Please pardon the massively mixed metaphors.)
Tanta: The "hell" I was thinking about was not for fraudsters who bought their homes with credit. I was thinking about legitimate people who put in 5% downpayment to buy a house and their house is 20% underwater now. What do you do? keep paying the mortgage?
Ask the PE shops who bought companies with 20% down and took all the equity away by dividend deal debt and are willing to tank the companies in bankruptcy.
outcome is the same, so why do we care about the motivation?
Not just for modelling, but for purposes of debating legislative initiatives. Don't you think these "foreclosure prevention" things being proposed--moratoria, FHA expansion, etc.--depend on a certain set of assumptions about why loans are failing?
That gets to Tom Lindmark's point. Sure, it matters to everyone whether we're talking about failed speculators trying to socialize the losses or just people caught up in financial distress. I think there are plenty of failed speculators out there, and I sleep fine at night with the idea that they just get foreclosed and we go on with life. On the other hand, if this "walkaway" meme is overstated, it may be leading many people to believe that there aren't enough cases of bona fide financial distress for us to care about, therefore no public policy responses are in order. (I know some poeple think that's never in order, but many of us are truly conflicted about what risk the GSEs, say, or FHA should be taking right now to mitigate some of the pain.)
That said, I'd like to see what happens to some default behavioral models when the Ramseys get fed into it.
I agree that the media meme tends toward "I can pay this mortgage but it's a bad deal so I'm just going to stop." I think that's the (presumed) attitude that upsets people so much.
The press seems to want to use "no contact" as evidence of ruthless "I just don't want to pay" walkaways. A lot of the media accounts I read of people losing their homes use the phrase "walking away" when it's pretty clear the owner couldn't pay if he or she wanted to. Sometimes the homeowner even uses the phrase. You're absolutely right to point out the sense of autonomy this gives people. My point is that by giving up on the process, and severing contact with the lender or collector, they're walking away not just from the home, but from the dragging out of their failure.
For the record, I'm neither satisfied nor dissatisfied with any particular collection process; I've never attempted any or been subject to any myself. I understand there are plenty of laws in place to protect debtors. I'm trying to get at the psychology of those who go the "no contact" route. Perhaps I am being too sentimental.
BG, of course it makes a difference. My whole point with trying to get a grip on this "walkaway" thing is to warn people who do think about walking away from a debt they can pay that they're putting themselves at some risk of getting credit in the future.
Absolutely the thing you want to do is what the Ramseys did: turn over your paystubs, tax returns, and bank statements, and keep a copy of all correspondence between you and the servicer. If you end up in foreclosure anyway, after your best efforts to work something out, at least you have a file folder full of stuff to bring in some day if you ever want a new loan. It really does matter to lenders to see stuff like that.
Sadly, if you can't submit documents showing you worked with the lender and documented your financial hardship, the new lender is likely to conclude that, well, you were one of those "walk aways." And I have no idea why anyone thinks any reputable lender would ever want to make a new loan to someone who really did "just walk away" from his last one. (You could possibly get somewhere with some hard money shark, but haven't we learned that's a bad idea?)
All underwriters have seen this before, btw. You get someone with a relatively recent BK or FC who wants to buy again. You ask for an explanation, and you get this story about a job loss or an illness or whatever (loan officers are very good at suggesting stories that us underwriters are generally sympathetic to). So then the underwriter asks for your tax return from that period, or copies of your medical bills, or copies of correspondence with your servicer, the underwriter gets . . . crickets.
Those few borrowers who do indeed bring in that file very often get a cooperative underwriter. We all know what "extenuating circumstances" are.
What do you do? keep paying the mortgage?
That is exactly what you do.
That, and remind yourself that you bought at a time when everyone and their mother was talking about 'housing bubbles'.
I'm trying to get at the psychology of those who go the "no contact" route. Perhaps I am being too sentimental.
I've actually been accused of being "sentimental" about no-contact borrowers, so we're probably on the same page here.
In my experience most of them are so depressed and embarrassed and miserable--when in fact the phone hasn't been disconnected--that they just can't face taking the lender's calls. To assume that a "no contact" borrower is "ruthless" is, in my view, idiotic. If it were me, I'd probably be under the bed in a fetal position myself. Anyway, the really "ruthless" borrowers tend to take your call and tell you to fuck off. Any collector can tell you stories about that.
That's actually the best argument for the whole "Hope Now" hoopla. I don't think the proposed modification process helped much, but the public campaign to convince people that there really is maybe a reason to talk to the lender--that it isn't necessarily hopeless--is important. As I said, you might still lose your home, but a deed-in-lieu or a short sale is better for you in the long run than just turning off the phone and ending up with FC on your record.
Inventory piling up and nothing selling in my area of Chicago, same stuff that did not sell last year. Attempts to rent this stuff is mixed, saw first big development go into forclure and expect there will be more. In this market, the carnage is coming and whether folks walk or whatever is purely academic.
Don't you think the so-called walking away is limited to investors or flippers who were never going to live there anyway?
As for "walkaway" definitions.
I don't think everyone (the press, blogs, readers) has bought into the meme that it only those who can afford a payment but chose not to pay based upon LTV.
I think most people think it just means leaving the house whether or not you can afford it.
Most everyone knows there is some "process" to losing a house (shortsale, BK, forclosure..whatever). Most however know little about what is involved etc, but the do know there is some process.
Walkaway to most people just means refusal to go through any process and just leave the keys and let the bank handle what may come.
Walkaway's motivation is important mostly because suddenly predicting how many home loans will default depends less on objective mathmatical methods, and more on subject emotional market psychology factors. Like the stock market proves...this is very hard to predict.
Don't you think the so-called walking away is limited to investors or flippers who were never going to live there anyway?
I think it's mostly that--overwhelmingly majority that.
I do think there are a few cases of "buyers remorse" in there--people who just regret having bought too much house, and who are naive enough to think you really can just mail the keys "back to" the bank (from whom you did not buy it, but if these folks weren't naive they wouldn't have paid that much for these houses and agreed to that much payment in the first place). A lot of these folks are hard to distinguish from speculators: they might occupy the property, but they bought it only because they thought they'd make money selling it someday.
However. While the number of such "buyers remorse" cases that we have today may be much larger than the historical "norm," given we did go through such a mania, this kind of defaulting borrower isn't really unheard of. There were plenty of them in the last few years; it was just that when the prices were still there they could sell. Many did. But they never got picked up in the statistics of "loan failures" because they weren't FCs. Used to drive me nuts--those stupid articles I used to bitch about from the Happy Economists arguing that "most" subprime borrowers (remember, it was just a subprime thing at the time) were "successful." Yet they never went through the numbers to see how many were still homeowners two years later--they just counted actual FCs.
The media never noticed the number of "new" homeowners who bailed out in a year or two because the payments were crushing and homeownership wasn't the cloud nine it was cracked up to be. So now, when those folks are showing up as FCs instead of "prepayments," we have to invent some "new" category for them.
One of the elements of the boom that was played up pretty hard in the press was the purported increase in people who bought homes as rental investments and not for their personal use.
It seems likely that, in playing up the concept of walkaways, "the press" believes that it is simply continuing that story line without making it clear to their readers (after all, editors are notorious for cutting out what they believe to be extraneous words in order to save on the cost of news print).
However, as Tanta points out, it seems likely that many of those "investors" may have committed fraud by failing to state on the mortgage application that the buyer was not going to use the property as their primary residence.
There is a huge difference in psychology between losing your home, and losing an investment property; and a huge difference as well in the public's response to each of these - we'll likely feel more like helping a family that is losing it's home, and much less like helping a foolish investor.
I notice the post is more about the subject of the article and not about the reporting,...maybe there has been some effect to the complaints.
OT- I thought Melancholy Korean was going to pick up "sea-change" wrt A Full Fathom Five.
I've had the opportunity to talk to some people who work with people in default and foreclosure. They tell me that, in many cases, the people seem to just freeze like the deer in the headlights when they see that financial disaster is bearing down on them. By the time they go to somebody (non-profit agency, short sale specialist at the local realty office, their own lender etc.) they are to the point where it's almost impossible to help them.
The short sale people tell me they regularly get calls from people saying, "I need you to sell my house right away!"
Walkaway's motivation is important mostly because suddenly predicting how many home loans will default depends less on objective mathmatical methods, and more on subject emotional market psychology factors.
I'm beginning to see why I'm talking at cross-purposes with a lot of people.
The overwhelming majority of foreclosures are uncontested. It has always been that way. This is not new. It may be new to people who haven't really been exposed to the process before.
I can assure you that the people building default models do not concern themselves with the "difference" between a borrower who just vacates the property and is foreclosed in absentia and those who get caught by the process server on the way to the Rite Aid, because they haven't found a place to move to yet. It doesn't matter to the servicer. (It does matter to model the number of evictions or bitterly contested FCs you might get, since those cost you more. But most FCs do not require legal eviction or months of court fight.)
Default models just look at prices, LTVs, debt levels, employment, etc. And their predictions based on those variables are not wrong because they don't worry about how borrowers subjectively think they are "walking away" or "being foreclosed." An unconstested FC is an uncontested FC to the servicer: it doesn't matter why the borrower did not contest. I don't doubt some borrowers fail to contest because they think the Rapture is going to happen next Thursday at 6:00 pm. I wouldn't plug that kind of "psychology" into my model either.
The only "psychology" that matters to a modeler is to find out how many Ramseys there are out there: those whose psychology dictates that they cooperate with the servicer as much as possible to avoid FC. That helps the servicer decide what resources to devote to workouts. Otherwise, though, the models aren't really interested in the stories we tell ourselves in order to make ourselves feel better. Psychologists and novelists might be, but servicers aren't.
OK, well, and the politicians are, because telling ourselves comforting stories is something they specialize in.
On top the psychology of walking away, I think there's a similar psychology for people who bought around 2005 and are trying to sell or are just feeling screwed. I read recently that a lot of deals have been broken because the sellers quibbled over a few thousand dollars. It is a miserable feeling to be on both sides of a transaction and never being the side that sets the terms and value of the item being bought and sold. I suspect that's why a lot of people are still holding out for top dollar when selling. Especially when, in a rising market, sellers made few compromises even when they were raking in a huge profit -- or if the owners put in upgrades expecting it to amount to more value. They don't want to accept the position where the other person is setting the price. And they don't like being in that position both in buying and selling.
We bought in 2005 and just sold last month. It was a huge blow when the buyer offered an unflexible price $25k below asking price (and we were already priced below the average home.) And then it was a second blow when they requested we spend another $1300 to bring the stove up to code. It was a blow because when we bought in '05 the seller was not willing to spend that for us, even though they were raking in a huge profit.
They tell me that, in many cases, the people seem to just freeze like the deer in the headlights when they see that financial disaster is bearing down on them.
That is what I have heard from every default servicing specialist I have ever talked to. I fully believe it.
The short sale people tell me they regularly get calls from people saying, "I need you to sell my house right away!"
I hadn't heard that one yet. I have heard "I need you to send the superintendent over to fix the water heater," though. First-time homebuyers. Steep learning curve.
It is a miserable feeling to be on both sides of a transaction and never being the side that sets the terms and value of the item being bought and sold.
Excellent point. If your only experience of "how sellers get to behave" is what you experienced when you bought at the height of the boom, not only does it feel like a ripoff to have to get dictated to, but it means that these folks just entered the process of selling the home at the wrong psychological place, and often don't let reality sink in until it's way too late. I sympathize with your experience, but congrats to you for accepting the facts sooner rather than later.
Perhaps there are some people who, unable to accept having to act like a "buyer" now that they're the "seller," are consciously or not trying to force the lender to be their "desperate buyer" in the absence of any actual desperate buyers. That would explain a lot of the weird expectations people have about what kind of bad deals they can get their lenders to accept.
It is a miserable feeling to be on both sides of a transaction and never being the side that sets the terms and value of the item being bought and sold.
If it makes you feel any better, you did have some part in the setting of the terms: you accepted them. It takes two to make a deal and you made a decision of what the deal was worth to you.
To a ruthless deal maker, if the other party accepts your first offer, then the price must have been wrong. Is that the way you want to live your life?
I have always thought, when we talk about "walking away", that there is some presumption that they have actually "walked" somewhere. When the sheriff comes on that fateful day, is the house empty?
So the distinction for me is that walk-aways recognize that either they can't make it work or they don't want to make it work, and they act. A walk-away must (1) initiate the sequence of events that lead to foreclosure and (2) they actually move on. If you just wait to see how long the bank takes to kick you out once you stop sending in payments, you're not really a walk-away.
This is why the "you can't fire me, I quit!" metaphor doesn't work quite well - people who physically move on (the stereotype of packing it up in a UHaul in the middle of the night) - are in a different posture. Those people are quitting when they think there might be a pink slip in their future.
Legally, the distinction is between a preemptive breach and merely failing to perform.
Now, I agree entirely that some people may, when the bank starts to foreclose, decide that they're not getting foreclosed, they're "walking away" - because it makes them feel like they're more in control. And that is, I agree, a "you can't fire me, I quit" scenario - just lipstick on the pig. It still won't be fun to kiss.
True, in the end, both situations lead to foreclosure. But isn't there a difference between furtive UHaulers and people having their stuff thrown out on the front lawn?
But isn't there a difference between furtive UHaulers and people having their stuff thrown out on the front lawn?
To a servicer, your "furtive UHauler" saves a few hundred bucks in eviction costs. That's the only difference.
The sheriff does not "come on that fateful day."
The actual FC sale is held on the courthouse steps. Whether the property is currently occupied or not.
The sheriff only shows up to evict you, after the sale, if you do not vacate on or before the sale date.
You have the legal right to occupy the home until the sale date. Until the sale date it belongs to you. Why would anyone move before they have to, unless they found a good job elsewhere or got a special deal on the U-Haul? The whole reason servicers offer the "cash for keys" thing to borrowers in FC is that the servicer incurs less cost if you vacate before the FC sale.
I don't see what occupancy of the property has to do with this any more than "no contact" has to do with it. But if your definition of a walkaway is someone who vacates immediately and saves the servicer a couple hundred bucks in eviction costs, well, then, servicers would be praying for "walkaways" instead of worrying about them.
If Litton is involved there's most likely more to the story. Take a look at past and present litigation involving Litton sometime...
"trouble getting hold of anyone with decision-making authority."
Classic Mortgage Servicing Fraud tactic. Stall until you can get the late fees racked up and the FC notice filed. Granted, the Ramseys very legitimately may not have been able to afford the payments on their loan. That's an issue that needs to be looked at with regard to who made the loan in the first place.
But the fact that they were dealing with Litton and couldn't get anyone to talk to them until they got a third party advocate involved makes me want to see what Litton was getting as "additional servicing compensation" per the PSA for whatever trust the Ramsey loan was bundled into. I'll bet that Litton, at the very least was pocketing late fees. IF such was the case, then Litton had absolutely zero incentive to even attempt to modify the loan. If the Ramseys hadn't found someone who knew what they were talking about to advocate for them Litton would have just kept ignoring them until the foreclosure was finalized and the auction over and done with.
Diane Cipollone is all too familiar with Mortgage Servicing Fraud as she fielded hundreds, if not thousands, of calls from homeowners across the country back in '03-'04 at the Baltimore Community Law Center when Fairbanks Capital, n/k/a Select Portfolio Servicing, was on everyone's radar. Of course Litton would have returned her phone call. They would have been stupid not to.
I should note that states differ on eviction laws. There are places in the country where you can't get a judge to sign an eviction order until 30 days after the FC date anyway. The servicer still demands that you vacate on or before the sale date, but they just can't use the physical coercive powers of the police to make you do it then, in some jurisdictions.
Every servicer hates evictions because it's another step, another expense, and frankly more bad publicity. (Nobody likes the pictures in the paper of people's stuff on the curb. Especially when it's snowing. Even the Evile Cynical servicers are astute enough to hate that.)
In any case, there is no jurisdiction I know of in which a lender can evict anyone until they've taken title to the property. Even in states where the law does not explicitly give the defaulted borrower all rights of occupancy until the sale date, precedent and common law does. Possession being nine-tenths and all that.
The problem with modeling is that we are seeing situations that just didn't happen before. We are seeing people who are underwater more than their annual income with no reasonable prospect for recovery. That's always been a rarity before, even in the oil patch collapse. It's just one more thing making the distinction between "walking away" and "being foreclosed on" hopelessly fuzzy. It's in the borrower's mental state to start with, so it's hard to measure; it's a continuum rather than a bright line; and now we can't even compare to historical measures because the buyers are in unprecedented straights
"Excellent point. If your only experience of "how sellers get to behave" is what you experienced when you bought at the height of the boom, not only does it feel like a ripoff to have to get dictated to, but it means that these folks just entered the process of selling the home at the wrong psychological place, and often don't let reality sink in until it's way too late. I sympathize with your experience, but congrats to you for accepting the facts sooner rather than later."
Tanta, we are totally glad we got out when we did! Better to take a $30k loss now than a $70k + loss later. We were very fortunate to be able to swallow the loss, and to be in situation now where we don't have to pay rent --so we can save money for the right house at the right price. But the whole selling experience made me feel like we were being asked to bend over and take it twice. At the same time we knew prices were going to fall and had every expectation to take advantage of that fall in the next few years. I feel for others who were in our situation. We were newly married and had our first baby in '05 and it just seemed like the right time of our lives to own, even though we knew homes were overpriced.
There were a lot of lessons learned from this: the virtue of patience, owning our own mistakes, knowing when to take a loss and move on, etc.
Tanta said:
Why would anyone move before they have to, unless they found a good job elsewhere or got a special deal on the U-Haul?
I've pondered this myself, having heard all these stories of people packing up in the middle of the night. I suppose all those stories could be dramatizations of the truth...
I don't see what occupancy of the property has to do with this any more than "no contact" has to do with it. .
If you're still an occupant, you haven't walked away. I think my point was, the term is not a function of one's legal or financial status - the term is a function of your geographic status. Which, admittedly, isn't particularly relevant, but then, I didn't coin the term.
I am with Tanta on the walkaways. I think more people than we realize will pay on an upsidedown loan as long as they can AFFORD the payment. Those who say they can afford it but chose to walkaway...I would guess that "afford" would be subjective, and that may include...if they choose to not eat.
Right now other cost (of being upside down on a mortgage) are not as completely evident. As inflation strains and tightens budgets, many of these bubble-created faux-communities will start decaying faster than the nations highway systems. I think as job insecurity grows, health and education costs get higher, and tax revenue shortfalls lead to less police and higher crime, the cost benefits of "walking away" from an over-under house in Resada, Bethesda, San Jose, Alexandria, Charlotte. etc. start to become more obvious.
Many will "walk away" from or "voluntarily decide to stop paying their mortgage" because it will become unmistakenly obvious that they can have a better life renting a cheaper, bigger, safer, _____er house. Walking away is smart money right now - the full effects of this phenomenon are only just begining.
FatalException, this is why people like me believe that what the term "walkaway" is trying to get at is, specifically, people who could pay the mortgage, but just don't want to.
It has nothing to do with literally vacating the property. Even in legal evictions, 99.9% of borrowers walk out the door on their own. I haven't heard of someone having to be carried out by the deputies in years. (Yeah, every now and then you literally have to pry people away from their homes. Those cases are nightmares and they are mercifully rare. But this happens in apartment evictions as often as it does in FC evictions. There are very very stubborn people out there in this world from time to time.)
But there are all kinds of reasons for the middle of the night UHaul. Mostly, it's people who don't want to be humiliated in front of the neighbors. Or don't want their kids to be exposed to that. Who could blame them?
I think the reason some blogs/media stories make a big deal over people "staying in the house until they're kicked out" is that it pisses them off morally, as if the least these people could do is leave the home as soon as the first payment is 30 days late. The implication is that people are "trying to live rent-free." Well, of course they are. If they are hardship cases who are in a financial bind, why would they start paying rent months before they have to? If they are getting advice from someone to vacate immediately, they're getting screwed. You have the legal right to occupy until the FC is completed, and if you're broke, take advantage of it! If the servicer offers you decent cash for your keys, take it without looking back! I see no reason for people to add to their own financial misery to make snotty bloggers happy.
If you're perfectly capable of making your payment but decide to withhold it, hoping that it will take months and months for the servicer to FC and then evict you, well, you're a "walkaway," but that's because you could pay and choose not to. You "walked away" from the post office where you should have been mailing your payment. These folks will end up "walking away" from the house eventually. Insofar as they exist and aren't mostly urban legends.
The term just has to be a "function of your financial status," because otherwise it doesn't make any sense.
I'm guessing this mortgage hadn't been packaged up and sold in different tranches?
Otherwise, who takes the hit from the fact that each month, there is 5% less interest coming in due to the lower interest rate?
Otherwise, who takes the hit from the fact that each month, there is 5% less interest coming in due to the lower interest rate?
The juniormost bond does (unless there's still overcollateralization left to blow through). The same juniormost bond who would take the write-down if the servicer foreclosed and had to write off a giant chunk of principal.
If you work out a modification with the lender, does that show on your credit report?
Just curious.
If you work out a modification with the lender, does that show on your credit report?
I have never seen a modification as such on a credit report.
If you were delinquent before the modification took place, those late payments will show for seven years unless you get the servicer to agree to take them off. I have never worked for a servicer who would agree to do that unless the agreement was that they'd report the loan as current only after the first 12 payments on the modified loan were made on time. Carrot thingy.
If you work out a modification with the lender, does that show on your credit report?
Depends what kind of mod, and how they report, but the worst case is that it is reported as a MOP code "7".
Thx Sarah!
sdtfs - full fathom five?
Am reading the Compleat UberNerd, so I can follow the discussion here better. The prose is almost as good as Newman. As for subject matter, uh, well...
"... the pure mind / Arose toward Newman as the whiskey warmed."
--Who is the greatest writer, Dedalus?
--Of prose you mean?
--Yes.
--Newman, I think.
Speaking of carrots, If the servicer is the one initiating the mod, then I would think it's safe to say that they continue to report the debt as MOP code 1/"paid as agreed".
7 is supposed to reflect CCCS type workouts, wage-earner plans, that sort of thing. But I could see how they could end up reporting it that way. It might not hurt to ask.
the worst case is that it is reported as a MOP code "7"
Have you been drinking out of bacon dreamz's glass today?
Civilians: MOP is "manner of payment." Code 07 is "paying under wage earner plan or similar arrangement." A "wage earner plan" is frequently known as a garnishment.
Tanta,
I take your point that "The term [walk-away] just has to be a "function of your financial status," because otherwise it doesn't make any sense". But then, I don't accept the notion that the mainstream media reporting necessarily makes sense all the time- nor, I think, do you!
- so the question remains what do the journalists mean?
Still, I'm convinced by your point that everyone in these unfortunate circumstances will "walk away" from the home at some time or another... so the geographic explanation is really useful. But I wonder whether the majority of journalists are using this term as a synonym for "ruthless default."
Perhaps the take-away lesson here is that absent a good definition of the term, journalistic coverage of this subject is only so useful as the journalist makes clear what they think term means?
so the geographic explanation is really useful.
Sorry, that should be isn't really useful.
Speaking of carrots, If the servicer is the one initiating the mod, then I would think it's safe to say that they continue to report the debt as MOP code 1/"paid as agreed".
I didn't make myself very clear, there, did I? (Don't know whose glass I've been drinking out of . . .)
The last time I documented servicer policy, the modified loan was reported as "paid as agreed" with the first post-modification payment. However, the historical pre-mod delinquencies remained on the report. Only forbearance or repayment plan borrowers were reported as 07. But it has been a while since my wrinkled reptilian snout had to be stuck into that kind of thing.
From time to time, you get people asking to remove the reporting of the historical delinquencies as part of the modification agreement. I have encountered servicers who will agree to do that only after 12 consecutive on-time post-mod payments were made. So they're re-write history for you, maybe, but only after you've performed on the mod.
I would personally never agree to remove historical delinquencies from a credit report for any borrower without some kind of contingency like that. But then I'm generally opposed to creditors who agree to drop valid derogs just to get a problem off their own backs--it means dumping on the next creditor who innocently relies on that credit report to disclose the borrower's true history.
But I wonder whether the majority of journalists are using this term as a synonym for "ruthless default."
As far as I can tell, many do mean that phenomenon we insiders would call "ruthless default." But like many of our commenters, they can't accept either "ruthless" or "default" for this behavior, because they want to believe that the mortgage contract gives borrowers the option to "give the house back to the bank." If you believe that, then you do not think you are "defaulting," let alone that you're being "ruthless." Some of us beg to differ, but that's why we're shills for Countrywide.
The rest of it is just reporters who use it as a synonym for "foreclosure," as far as I can tell. I have no idea what they mean by it. I find that casual usage of the term as puzzling as Mrs. Ramsey tendering a short sale in order to keep from losing her home. At some point the words just don't mean anything very precise.
The last time I documented servicer policy
Oh shit, I got you going, didn't I?
This is probably academic considering the Hope Now modification queue-crowd. For these d00ds, a tradeline going from M05 to M07 is the credit report equivalent of a runaway shopping cart dinging the side of their 1986 Plymouth Sundance.
Still, I think the likely scenrio is "if you keep current under this mod plan, and we won't ding you on the credit report".
Tanta takes the perspective of a bank mortgage loan officer so she is in the camp of the lenders basically and is critical of buyers stuck in an artificially inflated RE price structure. The appraisals on the bubble properties were bogus. That fact alone should exonerate upside down buyers. Then there were the exploding exotic loans that buyers were sold on by commission happy mortgage reps(salespersons).
Then the banks gambled trillion$ on mortgage debt derivatives with depositors' savings.
The builders were building cheapo stucco styrofoam homes that leak. The Executive Branch and the private Federal Reserve cartel were encouring and touting garbage loans and subpar homes to buy.
The builders were hiring illegals. The media was touting 'home ownership'. The system became toxic and you side with lenders who will get these homes for computer debt entries. The banks will be left with physical assets for loaning fractional reserve, taxpayer guarantied fiat money.
As bad as some powerless sheeple(all of us down here) are, I'd rather side with the public in most cases even the 'amateur' investors who bought flipping books over the corrupted finance RE system that was 'allowed' to go crooked!
The lenders will consolidate their market share and small to medium businesses will be bankrupted. Why be a cheerleader and gatekeeper for this wealth transfer from the bottom to the top?
For these d00ds, a tradeline going from M05 to M07 is the credit report equivalent of a runaway shopping cart dinging the side of their 1986 Plymouth Sundance.
Good one. I might have said "Gremlin," but we all have our fond memories of 80s cars.
I supposed the question was motivated by the concern over whether people could get a mod and still "keep" their nice pretty dingless perfect pristine sacred credit histories.
"Good one. I might have said "Gremlin," but we all have our fond memories of 80s cars."
Personally, I'd say the AMC Pacer was the high point of that era. That, or the Pinto...
Indubitably, she's a total shill for Countrywide.
But I don't remember appraisals ever coming with a guarantee that "this assent may not lose value".
They are, by definition, an estimate of a value at a given point in time. Kind of like my autographed 8x10 of Rob and Fab ain't worth as much now, but I'm not holding Artista responsible.
above comment for "the guest". and sorry abt the typos.
Tanta takes the perspective of a bank mortgage loan officer so she is in the camp of the lenders basically
Yep. That's me. Tanta the loan officer.
Bite me. I didn't spend years giving of my own time and expertise to try to convince people that RE was in a bubble, that these toxic mortgages were a bad idea, and that "now" was a terrible time to buy just so I could turn around and shill for the industry when the shit hit the fan. Jeebus. If I really did want to be a loan officer (gag), I could make a fortune off you people. Even today, in this cruddy environment. If you're that passive and unable to resist the blandishments of advertising and bullshit from NAR, then I could take you to the freakin' cleaners.
As Shnaps noted above on this comment thread, there were, in fact, some people telling you that it was a bubble and warning you about those appraisals and all that. Like, well, this blog.
So go tell it to the Marines. You don't get to call me a cheerleader for the industry just because I was right about most of this stuff before it was obvious to some other people we could name. You also don't get to call me a cheerleader for the industry because I don't get down with the idea that the RE bust should be used as an excuse to ratchet up the victimhood rhetoric and get people to buy into reactionary political and economic theories that couldn't get a hearing any other time.
Personally, I'd say the AMC Pacer was the high point of that era. That, or the Pinto...
The Pacer was certainly a horror.
But, you know, the Pinto was a 70s thing. Just like my old '74 Maverick. My old snot green Maverick with the black-and-chartreuse-houndstooth-check uphostery. That was worth one out of every two of the two hundred dollars I paid for it in 1980.
As for rock blogging, and today's real estate market conditions, I'd love to see somebody make a video for this song:
Black Sabbath
"Walk Away"
It's from their excellent 1980 album, Heaven And Hell.
Black Sabbath Online: Heaven & Hell
My friend used to talk about his 'vette.
Chevette, that is.
OK Tanta but I won't bite you. You have some valuable info to offer. But if you think forcing buyers to stay in an upside down asset continuing to lose value every month as the economy gets worse and unemployment rises, etc. is correct & THE (Moral) ANSWER...well these buyers in overpriced houses will go under later IMO and we are just delaying the Great Reckoning. Try and think macro.
Ruthless applies to the Federal Reserve, Executive Branch, Congress, international bankers, etc., or if you're not the suspicious type...maybe all these entities are 'clueless'.
Appraisers were paid to 'hit the mark' and had to play to be hired. Buyers were pumped with Fear advertising strategies to Buy Now or forever be a Loser Renter.
People are walking from their upside down autos too. You can't stop the survival by taking the moral high ground. If people get hungry enough they will steal. You'd say that was deplorable too I'd guess.
People got sick of renting and thought buying would be worth a shot. I don't think a lot of the buyers even the 'investors' had sinister intent or moral depravity at their core. People want to improve their lives as we are taught from birth in this Great Nation of workers and consumers.
Sure there's a few bad apples. The bad apples at the top of the food chain or pecking order is what really concerns me as this collapse unfolds. Check it out.
It's a terrible time to buy now and it'll be a terrible time to buy in a year or two. That's because we live in a ridiculous boom/bust bubble/crash economy that is what...simply random or fate or just bad luck & timing. Eyes wide shut and Away!!!!
Tanta sez: Part of the "hell" that will break loose is that servicers will start doing judicial FCs and pursuing those deficiency judgments and making criminal referrals for fraudulent loan applications.
BWAHAHAHAHAHAHA! I love you, Tanta - but the banks and company are in for a rude awakening at the court house door. The local courts are already jammed because of underfunding and an exploding criminal caseload (which always gets priority) in a deteriorating economy. They'll be lucky to get a court date within a year.
Prosector's offices are just barely keeping up, and if you think they are going balls to the wall on income fraud because mortage originators were too busy spending their annual bonuses to actually to their job, well then I got a no doc option ARM mortgage on some Florida coastline to sell you.
Actually, the thing from the article that struck me the most was this:
"The answer was three months. In June 2007, she contacted Countrywide. According to Collins, Countrywide told her she did not qualify for a workout because she was not yet behind on her payments. She kept calling and spoke to many people in different departments. "They would say, 'I'll look into it,' and then I'd get the same response." "
In other words, a borrower in trouble, who KNEW she was in trouble, contacted the lender EARLY and OFTEN and got the runaround. If I were in loss-mit, I would be screaming blue murder at people after hearing about this. Seriously.
Hey Tanta,
Take both "the guest"s and Zarley's advice. Think more macro. You area of expertise is too narrow. Not that it is not valuable, it is. But I wholeheartedly agree you need to look at a macro perspective as well as a historical perspective. Guest is mostly right that most of the people caught up in this mess are good people who were and are trying to better their lives the way our culture and system has brainwashed them to do.
Understand that your perspective on lending is too negative and self defeating ON A MACRO LEVEL. Too much optimism is bad. Too much pessimism might be worse....
How many people end up "walking away" simply because they've tried to contact the lender, gotten the run-around, shuttled from department to department, "sorry, we can't help you", tried to re-negotiate in good faith, and gotten zero for their results?
Remember, it used to be that although it was harder to get a mortgage from a bank, they also were much more willing to help out when problems were on the horizon. Now, the argument seems to be "well, we can't help you out because we securitized your loan and mushed it together with a whole bunch of other loans and we'd have to negotiate with 100 different entities we sold all this stuff to, and that's too much of a hassle, so no, we're not going to help you out one tiny bit."
Add to this a background of watching companies "walk away" from pension responsibilities for their employees, blithely ignore the plummeting value of the company while shelling out multi-million dollar packages to its CEO, whine to the government for help and get financial assistance because "they're too big to fail", and you can see why people might get pissed enough to just take off and send the keys in.
Somehow it seems that if the Ramseys had simply been able to get a decent market rate at the time of purchase this entire saga wouldn't have happened. 7% was, and is, affordable. 10.2%-12% was not. And being happy with a workout that seems to leave them that far underwater suggests that they were extremely willing to pay their debts, which you've described as the "character" part of the 3Cs.
I might be missing something, but it seems to me this almost-foreclosure qualifies as "unnecessary".
It's the bottom of the thread, but after psychoanalyzing the Ramseys, isn't it obvious that it is all about the monthly payment? They like their home, they were ok with the $2k payment, but couldn't shoulder $3k. They may have been renting an apartment for $1200-$1500/month, and the $2k for the initial mortgage seemed reasonable for something that got them out of a rental and into something nicer.
$300k @ 7% is the same to them as $200@10.5% (or whatever the exact number is). Underwater is something that doesn't enter into it unless they need to sell.
In fact, the monthly payment psychology seems to be regularly underestimated in looking at the whole mess.
Along with this rather too obvious observation, the following:
OMAHA, Neb. (MarketWatch) -- Berkshire Hathaway has bought portfolios of subprime mortgages and has frozen resets that were due to send the interest rate on those home loans higher, Chairman Warren Buffett said on Sunday.
Clayton Homes, which makes and provides financing on manufactured homes, purchased these subprime mortgages and sent letters out to all the borrowers involved telling them the interest rates will not be reset higher, Buffett explained.
That's even though the contracts allow Clayton to increase the interest rates on these loans, the rates won't change, he added.
"We're not in the business of resetting mortgages higher," Buffett said. Clayton is a unit of Berkshire
Buffett buys subprime mortgages, freezes resets - MarketWatch
I'm sure he got the portfolio at a fire sale price with the intention of not doing resets. I expect this to work out well.
Since Clayton is the largest lender in the manufactured housing market, they have the ability to manage a little subprime.
Tom....looks like we cross posted.
It's unusual to find the bottom of the thread posting to converge on something both on topic and simple.
Tom....looks like we cross posted.
S'Ok...I liked the article quote about Buffet. Lots of loans got made to people who shouldn't have gotten them, but it seems bad loans also got made to people who should have been treated better. If there's a way to make money by distinguishing the two groups then so much the better.
Or the top of the thread for that matter