["we won't commit now to what we might or might not do if you do decide to miss a few payments."]
There are a number of issues here.
First, borrowers seem to believe that this is a quick process.
It is not.
Second, no matter WHAT the person at the call center says, your workout is subject to review.
The person who answers the phone is not a decision maker, and they have a script to follow.
Third, just because the customer service rep takes your information and says that they'll review it for a modification, doesn't mean that you're going to get one.
The prevailing perception seems to be that all you have to do to get a loan mod is ask for one.
The mortgage industry has gone a long way to reinforce this perception, all the "helping borrowers to stay in their homes" rhetoric.
When told they don't qualify for a mod, then come the cries that "they're not helping anybody."
[Certainly, proponents of this silly 90-day foreclosure moratorium for the GSEs need to explain why, exactly, they think that the number of successful workouts per delinquent loans will increase simply by eliminating foreclosure starts or delaying foreclosure completions. ]
A number of states have already tried this.
It's been tested plenty... is there any data?
Is there any evidence, ANY, that this improves loss mit results?
Are short sales considered mods? Because on the short sale front, anecdotes are actually threatening to become data. Long delays. No communication.
I live in a two-step state, where the P&S and all the dirty work happens after the initial offer is accepted. So I'm not talking about the initial stage, where a bank is deciding whether to accept a short sale at all, or at what price. That part's done.
I'm talking about not returning phone calls, ever. Noncompliance with non-negotiable statutory requirements for the transfer of residential property, such as various certificates and mandatory inspections. Cancellation of deals on the day of closing without explanation. Complete failure to cooperate with buyer's attempts to get financing.
All in the context of no phone calls, no communications.
So, I'm sure many of the anecdotes about the mod squad are garbled reports by borrowers who don't remotely understand the process. But in the case of short sales, there's a lot of indications that some lenders aren't even cooperating on the easy stuff.
A modification is a permanent change to the terms of the original note, such as reducing the interest rate or balance, extending the term, changing from ARM to fixed, etc. You only do that when the idea is that the loan will continue.
A short sale does not change the terms of a loan, it changes the required payoff to get the lien released.
factoid from Lehman Brothers: for securitized subprime loans, ~70% of modifications so far have been on loans that were current the month prior to modification. (this is true because while the percentage of current loans that gets modified is lower than the percentage of 90 day DQ loans that get modified, the current bucket is much larger.)
Since the Glorious September Revolution should be consummated by the end of this weekend, foreclosures will soon be decreed thing of the past; just like capitalism. Romper Room rules will be officially in effect throughout the USSRA: losing will no longer be allowed. Bankers will keep their banks, peasants will keep their homes. Long live the indissolute union of the Banking Class, the Peasantry, and the Intelligentsia under the enduring leadership of our Great Leader Miss Sarah, who will let no Banker or Peasant so away with an empty Easter egg basket. And any misguided reactionary bourgeois elements who refuse to stop smoking their opium-for-the-masses about self-regulating markets will be sent to re-education camps in certain an archipelago in the Bering Stait.
To clarify something -- why some people hope/expect a workout before a delinquency -- I think I can explain why: many are trying to preserve their FICO score. They're up to their gills in debt, generally current, and need a few hundred dollars a month breathing room. But, when they're told that they need to be 90 days delinquent, they come into our office for a consultation (I work in a BK law firm) to see if that's "true". Yes, it is generally true. And your FICO score will drop to 570 very, very soon. So, now you'll be 90 days late on a property that's upside-down, and a FICO score of 570, and you have $40,000 in c/c debt. Hey, BK becomes an attractive an option, then. Of course, if they have only a small amount of c/c debt, then no BK and just walk away.
Lender "sanity" -- behavior in normal times -- is suboptimal behavior these days. With up-side down property values, lender attitides of "no workout unless severely delinquent" are driving many people straight into foreclosure or BK because once severely delinquent, their FICO is trashed so they just don't care any more.
If someone is at risk of defaulting aren't the two options something like: a) modify the loan, or b) loan is defaulted?
No. If someone is at risk of defaulting, the option is to a) do some kind of a workout, including but not limited to modification or b) let it default and then foreclose.
I'm a little amazed at this process. Why wait for 90 days or more of delinquency before beginning discussions about a workout? It's kind of like calling the fire department to report a fire in your home and they say, "Call me back when the second story of your house is fully engulfed?"
I think prevention--where reasonable--would be a far better approach. I suspect that a number of potential candidates for a workout can see that they can not afford an ARM reset or, in fewer cases, their economic situation may have deteroriated to the point where they know they can not make current payments in a month or two. Wouldn't it make more sense to start the workout process then? I'm not saying each case should result in a workout, but it could actually save both parties money.
Then again, a lender may find the prospect of months of late payment fees, not to mention workout fees, more to its advantage. And that's disgusting.
Why wait for 90 days or more of delinquency before beginning discussions about a workout? It's kind of like calling the fire department to report a fire in your home and they say, "Call me back when the second story of your house is fully engulfed?"
I think it's more like waiting to call the fire department until there is actually a fire. As opposed to calling the fire department and saying, someone is lighting candles in this house. You'd better show up just in case someone knocks those candles over and doesn't get the fire put out on his own.
Prevention to me is like, don't make stoopid loans. There used to be people who prevented just that, and they were mostly shown the door.
Free money because you can print it and trade it to poor people for cool stuff and valuable services made it look like prevention was the greater of two evils. But you can't unring the bell. The question now is, for whom it tolls. Ask not!
"It honestly really shocks me that people would expect a servicer to commit to giving you a deal prior to delinquency: that is simply inviting people to withhold payments in order to get their interest rates reduced. Why would anyone expect a servicer to do that?"
Fraud all the way up and fraud all the way down it's the American way.
Loan modifications are a complete joke. They do not address the problem, which is that the collateral is not worth what is owed against it.
People underestimate the extent to which a borrower becomes apathetic to paying a loan in which the amount exceeds the value of the property.
The only loan mods that will ever work are principal reduction mods in which the principal is reduced in the order of 40-50%. Having said that, it will never happen, because once the neighbors catch wind, then they will stop paying their loan. It's a vicious cycle of apathy, greed, and lack of accountability.
Politicians tend to love them because they look great on paper.
So, now you'll be 90 days late on a property that's upside-down, and a FICO score of 570, and you have $40,000 in c/c debt.
Well, you know, the mortgage lender can't make the $40K in card debt go away. Not unless you think these people should be getting "cash out" modifications.
The trouble is that the borrower you describe is so likely to redefault after a mod--which just costs even more to the lender--that it's hard to know why you'd want to do one in the first place. BK is their best option. It's probably the lender's best option, too.
Prevention to me is like, don't make stoopid loans.
This is why people are looking for workouts. Once they see the servicer/bank in a no-win situation they think they might be able to cash in. Seems like rational behavior. This is not to say honorable behavior.
Whether you as a borrower are in trouble or not, most people would prefer a large savings if they could get one.
People with $3 million contracts sometimes hld out for $5 million contracts. They aren't in trouble at $3M, but they want more.
So prevention is the key. Too bad we have allowed the system to get so stoopid.
If the lender can get it out of their option arm portfolio into a GSE conforming loan, the likelihood of a relatively quick short sale / workout increases.
ote: "Hope Now Rate Freeze" is often reported as a specific type of modification in remittance reports, separate from "rate reductions" and everything else, and they're almost always at the bottom of the list in terms of the number done.
As opposed to calling the fire department and saying, someone is lighting candles in this house.
Not sure that is a good analogy, but I get your point.
The issue I see is that you have people who honestly want to stay in their house, but are smart enough to realize that a) they are seriously underwater already (so they can't get a traditional refi), and b) they can't afford the payments after their loan fully recasts (they were on option-arm making minimal payments). Maybe they've made a few payments by dipping into savings, but they know it is not sustainable. And yes, they are trying to avoid a big hit on their FICO.
Are you saying there is no value in discussing any potential mod at this point? That it would simply encourage people to try holding the bank hostage?
It's kind of like the two parties got drunk, met, fell into bed together at 2AM, and now its daylight and one of them has sobered up and isn't in love with the other party anymore. The one that's still drunk asks, what's wrong honey? You agreed to all my wishes last night.
Terry-
It depends on if the workout party holds the loan or is a servicer. There are lenders actively doing exactly what you propose. Their motivation is to get the loan off of their books onto the GSE's. They are willing to take a write-down now, rather than risk a default later.
And dp, modifications are not a joke if the lender is writing down the loan amount to one that is affordable and makes it FHA or GSE conforming.
The joke is the knuckleheads who are walking away with hugely subsidized loans that are now underwritten by the Chinese and Russians and guaranteed by the US taxpayer.
Apologies, but talk of modifications and foreclosures just seems so empty in the bigger picture. What any particular bank is doing for any particular borrower in regard to their particular loan... it's driving me nuts.
I trust that Tanta is master of the minutia, but we need people like this working on the large strokes. Enough analysis, enough paralysis. Tantas and engineers, please find each other and build a solution.
I suspect that a number of potential candidates for a workout can see that they can not afford an ARM reset or, in fewer cases, their economic situation may have deteroriated to the point where they know they can not make current payments in a month or two.
I'm not saying that people in situations like that don't get mods. My emailer seems to think they don't. But obviously some mods like that are happening (see bacon dreamz's data from Lehman).
The thing is, with this "economic situation has deteriorated," you have to demonstrate that. That means either you lost income or non-discretionary expenses increased due to factors beyond your control. Anybody can work up the budget, gather the income and asset docs, write the hardship letter, and send the package in to the servicer. It's not like if you do that, they then also force you to go 90 days down.
People who are being told that they won't be considered for a mod unless they're delinquent are usually the ones who haven't done anything--they just called out of the blue and asked for a mod. Without some other evidence of imminence of default, the servicer has to use delinquency to indicate that.
While I mostly agree with Tanta's observations here, I can't help but pick a few nits.
1) Sometimes you can establish that a borrower is "in trouble" before they are 90 DQ. All sorts of cash flow shocks are demonstrable before 3 payments are missed - a temporary layoff that is exhausting, but has not yet exhausted, savings - a massive payment reset that happens tomorrow, etc. Especially now with the high volume of toxic loans out there, it ought to be possible to establish that a borrower is in trouble before the magic 90 DQ. But that was the historical benchmark, and I suspect that servicers are so swamped now that they aren't about to relax a rule so as to expand their volume.
2) It was the case most 30 DQs didn't roll to 60, and even most 60's didn't roll to 90. But the 30 to 60, and 60 to 90, roll rates for subprime, Alt-A, and even prime in the bubble zones are now way beyond what we've seen in the historical record. It's a good bet today that more than half the 30's in those categories will roll to 90.
In Dallas Fort Worth we had a similar but smaller bubble in the 1970's and it took all the way to 2000 for prices to recover. My mother has a house bought in the 1992 bust for 72000 now 16 years later 72000 looks pretty good.
And dp, modifications are not a joke if the lender is writing down the loan amount to one that is affordable and makes it FHA or GSE conforming.
Not a banker,
That's my point. They aren't and I really doubt that they will. And the reason they won't is because once you reduce one guys principle value, well, there goes the neighborhood.
Uncle Billy-
The powers that be have figured this out, it is done.
To recap:
The Fed's alphabet soup has monetized the securities.
Anyone without access to the windows have sold off positions at 5,10, 15 cents on the dollar.
Lender have ceased neg am loans. Option Arm are now priced with requisite risk.
Lenders that still have otpion arm portfolio's are their books are racing to refi them into conforming FHA or GSE loans.
The US Government has nationalized the mortgage underwriters to keep foreign investment as the liquidity base for mortgages.
As a borrower, you have leverage if you loan is in a portfolio with an option arm lender that is holding the loan and has not been securitized. WAMU, Countrywide, WB etc....
If your loan is already securitized, you have effectively lost your leverage. Therefore, you need to prove hardship, and convince the holder of the note they are better off working it out today, than taking chances later.
If your loan is in one of the CDO portfolio's sold off for pennies on the dollar, good luck.
One of many parts of the problem is that borrowers are getting entirely too many different stories from the "experts." At the onset of FHASecure and HOPE Now, for instance, borrowers needed to be current in their payments for the prior six months before any rate reset to qualify. Unfortunately, the web appears to have been scrubbed of the "official" announcements so all I have to cite is blog entries: Real Estate Blog - FHASecure or Insecure? "3) The current loan does not have to be delinquent to qualify.
4) The current loan can be delinquent, BUT the delinquency must have occurred because the current mortgage rate was adjusted or reset. Mortgage payments must have been current for the past 6 months prior to the reset.
So anyone knowing that they weren't going to be able to afford an upcoming reset could have started looking for a refi? Not according to what you're saying here, Tanta.
Now, for the "official" version, taken directly from HUD updated 09/13/08: Error FHASecure Frequently Asked Questions for Homeowners
Eligibility
How far behind can you be on a mortgage to qualify? What about more than 90 days?
There isn't a limit on how far behind you can be on your mortgage or how many payments you've missed. Whether you're current, one month behind or multiple payments behind, the amount you can refinance will depend on the value of your property and how much you owe and if the lender, or another eligible source, is willing to take back a second mortgage to help bridge the gap between what is owed and your home's value.
Must I be delinquent, and for a certain period of time, in order to be eligible for FHASecure?
No, and FHA encourages homeowners facing reset to refinance before they fall behind on their mortgage.
I have a fixed rate mortgage and have fallen on bad times. What about me?
Homeowners facing financial difficulties and unable to make their mortgage payments are strongly encouraged to contact their lender.
Many lenders offer assistance to their borrowers to help them bring their mortgage current.
Homeowners may also want to contact a HUD-approved housing counseling agency to find out about programs that may be able to assist them, especially if communication with the lender has broken down.
To find a HUD-approved housing counseling agency, please call 1-800-569-4287 or search online.
Families should not wait to seek mortgage relief. Right now, homeowners can determine if they are already eligible for mortgage assistance through FHASecure, FHA's existing refinancing program. They can obtain information through any of the following options:
Contact a local, HUD-approved housing counseling agency at HUD.gov;
Contact the HOPE NOW Alliance at (888) 995-HOPE; or
Call FHA at (800) CALL-FHA.
Sustainable, Affordability Homeownership
Hope for Homeowners maintains FHA's long-standing requirement that new loans be based on a family's long-term ability to repay the mortgage. FHA only allows owner-occupants to be eligible for FHA-insured mortgages. Borrowers must also meet the following eligibility criteria:
* Their mortgage must have originated on or before January 1, 2008;
* Their mortgage debt-to-income must be at least 31 percent;
* They cannot afford their current loan;
* They did not intentionally miss mortgage payments; and
* They do not own second homes.</i>
Oh wait, here's the rub: Voluntary Lender Participation
FHA will continue to offer lenders an alternative to foreclosing on borrowers. Similar to FHASecure's recent expansion, lenders will be encouraged to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property. In many cases, reductions in principle will cost lenders less than the losses associated with foreclosure.
Somebody make up their mind and stick with an across-the-board answer. Would. You. Please.
dp-
Depends on who holds the note. As pointed out above, if you are dealing with a servicer of a CDO portfolio sold recently for pennies on the dollar, you are probably right.
On the other hand, if you are dealing with a motivated lender, they are in fact doing just that.
) Sometimes you can establish that a borrower is "in trouble" before they are 90 DQ.
Well, of course you can. That's why I said it often will depend on what you told the collector.
My guess is that people who call up and say, I'm current right now but I just got a layoff notice today and I only have enough savings for one more payment and can we do something will get referred to loss mit. They'll still be told they have to send in the layoff notice and the bank statements and the household budget, but that can be done before they're 90 days down.
Some folks in that situation may have missed a payment already. But the collector will be calling before it's even 30 days late. I can't tell from these anecdotes like the one I began the post with that these were folks who told the collector that they just lost their jobs or something. I got the impression these are folks who just called up and asked if they could get their rates or balances reduced.
Certainly I agree that mild DQs are rolling to serious more than was historically the case. But you're still not going to find anyone filing FC at 30 days down just because cure rates are dropping. In the absence of other verified information one way or the other, you just can't conclude that a mild delinquency means default is imminent. That was the only point I was trying to make. I wasn't trying to argue that there are no other ways to get that information.
I don't doubt you, I just haven't seen it personally.
Unfortunately, what I see on a daily basis are borrowers who were financially shakey when they got the loan, and after moderate to minimal hardship, are no longer able or willing to continue payments.
If you were down to your last $2,000, and your mortgage payment was $1800, would you make the mortgage payment?
So anyone knowing that they weren't going to be able to afford an upcoming reset could have started looking for a refi? Not according to what you're saying here, Tanta.
I wasn't saying anything about refis, Mike.
I also wasn't specifically talking about rate resets on ARMs, either.
All I had to do was read the first couple sentences to know it was Tanta rather than CR. It was obviously another whining apology for loan servicers.
(1) "First, what are "borrowers in trouble"? If they are current and have never been late on a payment, what kind of "trouble" are they in?"
Try job loss.
Try sudden illness that will mean loss of income and/or no health insurance
Try they have been paying the mortgage by skipping the electric bill this month or skipping the car payment that month or not paying the car insurance..... Looks good on the mortgage but in fact it can not be sustained.
(2) Quit APOLOGIZING FOR THOSE YOBOS. They do not want to cooperate. They do NOT want to discuss modifications.
I had a client who had a heart attack and 2 coronary surgeries. Being self-employed, that rather put paid to paying the mortgage. Lenders (and particularly Citiresidential) would not talk. Would not talk when it hit 90 days except to whine they wanted all the past payments caught up over 3 -6 months.
They finally talked when it hit 1 month out from foreclosure. The best solution would have been to simply add the arrearage to the back of the loan and extend the loan for 6-9 months over the life of the loan.
The man was getting back to work but his income was about 1/2 what it had been and would be increasing.
They wouldn't get reasonable. On his primary home, the lender wanted it all in 9 months - basically doubling his payments with fees and charges - and this with an LTV of 40% (that is right - 60% in current value equity.) On the 2nd home (had been his grandfather's home and he bought it from the estate), Citi wanted all arrearages in 9 months - again nearly doubling the payment. Of course that house is now upside down by 33% of the loan.
They wouldn't get reasonable so I solved the problem. I had him file a CHpt 13. Lender on primary will get told to suck it up and spread the arrearages over 36 -60 months. Citi will get it shoved up their (fill in the blank). The Court can and will cram down the 2nd home loan by 66%, reduce the interest rate to current prime and basically tell them to go away, (Assuming of course that the "trustee" of the CDO bundle can ever produce the documentation of how they acquired the loan. Nothing has ever been recorded aside from the original mortgage - no assignment of the mortgage, nothing. And if they can not produce the documents before the bankruptcy is finished and discharged, they will first get kicked out for not being able to prove they own the loan and then the mortgage will get discharged because no one who can prove they own it will show up. Now there is an ending they deserve for being unreasonable - the entire mortgage is cancelled and discharged by the court.)
So Tanta, you precious loan servicers are NOT reasonable, rational or much of anything else.
dp-
Nor do I doubt you. Given the number of loans securitized vs those that are not, I would guess your scenario's are closer to the norm. Unfortunately.
All I had to do was read the first couple sentences to know it was Tanta rather than CR.
And when it says "by Tanta" right under the title. How do you do it, Sherlock?
Try job loss.
OK, I'll try. Why would you modify a mortgage for someone with no income?
This is not a rhetorical question. I have received no data--nor have you--that people who lose their jobs aren't being given forbearances or repayment plans or DILs or short sales. Or that people who lose their jobs aren't just letting the house go because they know they can no longer afford it.
However, they aren't necessarily great candidates for a modification, at least not until they're employed again.
Quit APOLOGIZING FOR THOSE YOBOS. They do not want to cooperate. They do NOT want to discuss modifications.
And your proof for those categorical claims is one anecdote?
I am not apologizing for bad servicers. You, on the other hand, are making sweeping generalizations based on one story you know. Which is basically what we've come to expect from you.
has there been any discussion on calculatedrisk or any other blog, about what will happen if the mortgage rates were pushed to around 5%??
can some one please point me to a link where it has been discussed? thanks..
i am going by the assumption that since government is going to be the end buyer of mortgage...they can make the rate go below 5% to help the housing and financials to help the economy?? comments please.
note: "Hope Now Rate Freeze" is often reported as a specific type of modification in remittance reports, separate from "rate reductions" and everything else, and they're almost always at the bottom of the list in terms of the number done.
No effing way are 70% of mods on current subprime securitized loans have nothing to do with Hope Now.
I smell a data integrity/data entry issue.
I have a feeling somewhere there is a drop-down box that is laid out something like this:
Select Modification Type:
1) Rate Reduction
2) Principal Reduction
3) Change in term
.....
14) HopeNow Teaser rate freeze
Most humans entering this data are just is selecting "1" as soon as they see the word "rate".
Everyone here is making sweeping generalizations. I'm sure some of the people calling before getting behind in payments are in serious financial trouble. If they are, of course they should be required to document it. And I'm also sure some of the people are gaming the system. Before judging I'd like to hear stories from borrowers who do document their problems and the corresponding results from servicers.
Tanta you are spot on when you say "It honestly really shocks me that people would expect a servicer to commit to giving you a deal prior to delinquency: that is simply inviting people to withhold payments in order to get their interest rates reduced. Why would anyone expect a servicer to do that?"
Very true, but that argument cuts both ways. If a servicer won't give any modification specifics before delinquency then borrowers (some who really are in trouble) are incented to go delinquent. If borrowers really are in trouble, what do they have to lose? How does that help anyone?
Ann, thanks for that anecdote -- very helpful to hear from people in your situation!! This is going to get far worse than most of us imagine. I've heard rumors that the inability to provide documentation and to prove who owns these mortgages is what really has lenders quaking in their boots.
At this point, frankly I believe there is no good solution. Thus the problems will expand like a cancer, causing further job losses, further defaults, and eventually feeding on itself in a downward spiral.
The only question in my mind is whether the Fed fires up the printing presses to try to stem the oncoming disaster. The end result is no better -- it just changes what we can do to prepare.
Tanta,
what about the folks who bought with ARM for investment purposes?
I think the discussion of incentives/disincentives applies very well to them.
After all, they may decide to walk away due to the poor performance of their investment. If a rate reduction would bring them close to current market rents plus a small loss, more of them might be inclined to attempt to keep the property.
But hey, if they experience only serious disincentives, then walk away becomes the preferred strategy.
What I see right now is no discussion of keeping marginal investors out of the foreclosure stream.
Here in Phoenix, they are a major contributor to the foreclosure stream- of course a significant number may just be flipper frauds too.
One thing that jumps out at me is that this all comes down to judgement and staffing.
Tanta comes at this problem from a public policy perspective, attempting to find the best solution which can be applied across the board.
Ann comes at this situation, having seen the individual circumstances behind the statistics.
It seems to me that you have to have the broad policies, but the flexibility at the local level to make the optimal decision in each unique situation. Ultimately this requires a massive amount of individual attention, analysis of optimal loss mitigation approach, and the ability to tailor a custom solution in the best interest of the lender.
This will require MASSIVE manpower, additional staffing, and policies to mitigate abuse. Servicers do not currently have the resources (human, nor capital) to do this. Eventually we will see that the optimal public policy is to invest the resources required to make this individual attention required. But financially it will be infeasable. Checkmate.
I keep wondering. Why are we favoring foreign governments holding MBS over USA citizen deadbeats. I know, it's kind of a tough call, but I prefer to bailout USA deadbeats over foreigners.
OK - so the foreigners will get mad and refuse to buy US debt. This is a bad thing?
No effing way are 70% of mods on current subprime securitized loans have nothing to do with Hope Now.
sorry, i should have been more precise. i didn't mean to imply that the Hope Now mod numbers were insignificant. they're just the minority compared to all the other types of mods being done (i.e. maybe 20-30% of the mods in a pool will be "Hope Now Rate Freeze").
Thank you, Tanta. It drive me crazy that people won't consider secondary effects like the 'hostage' incentives. But then again, maybe I'm the irrational one for expecting people to be rational when all experience has shown the contrary.
Gavshire Hathaway writes:
One thing that jumps out at me is that this all comes down to judgement and staffing.
Tanta comes at this problem from a public policy perspective, attempting to find the best solution which can be applied across the board.
Ann comes at this situation, having seen the individual circumstances behind the statistics.
It seems to me that you have to have the broad policies, but the flexibility at the local level to make the optimal decision in each unique situation. Ultimately this requires a massive amount of individual attention, analysis of optimal loss mitigation approach, and the ability to tailor a custom solution in the best interest of the lender.
This will require MASSIVE manpower, additional staffing, and policies to mitigate abuse. Servicers do not currently have the resources (human, nor capital) to do this. Eventually we will see that the optimal public policy is to invest the resources required to make this individual attention required. But financially it will be infeasable. Checkmate.
Gavshire Hathaway | 09.13.08 - 1:31 pm
(Everyone has already had several collections calls by the 60th day of delinquency. If you refused to take those calls or refused to give a reason for your delinquency, you should not be surprised to find your "willingness to make a go of it" under some question.)
What if you called them first and got blown off because you weren't delinquent yet? I would think that would be a decent excuse for not answering the first few months of collection calls.
Oh, and FYI, fire departments generally take every call very seriously.
The thing is, with this "economic situation has deteriorated," you have to demonstrate that. That means either you lost income or non-discretionary expenses increased due to factors beyond your control.
I am not judging whether a mod should be granted or not, obviously either or both sides could be (and in many cases, are and were) lying. However, to wait 90 days to start a process means probably 180 days until a payment is made or decision is made to foreclose. In the meantime, the borrower is running up big late fees if a mod is granted and the lender is not getting any income in the interval.
I would think an early and short process, whatever the outcome, would be to both parties advantage.
...[client] had a heart attack and 2 coronary surgeries. Being self-employed, that rather put paid to paying the mortgage. ...
When I started thinking about going into business for myself, I made sure my mortgage payment and basic living expenses could all be paid out of my wife's income. If I hadn't had a wife with a very reliable income, I wouldn't have gone into business for myself with less than nine months living expenses (including health insurance) in the bank.
The man was getting back to work but his income was about 1/2 what it had been and would be increasing.
Just how certain was the "would be increasing"? By how much? Might we not expect this poor fellow not to have quite as much get up and go as in the past?
... On his primary home, ... On the 2nd home (had been his grandfather's home and he bought it from the estate), ...
Uhhhhh ... you're in business for yourself, you don't have money in the bank to get through a long rough spot -- or else you don't have health insurance, so any major medical expenses will wipe you out -- but you take on another mortgage to buy a second home?
This fellow doesn't seem to have had very good business and financial judgment. Why should the lenders have thought when this started and the housing market hadn't yet deteriorated so much as now that they'd be better off modifying than foreclosing? That they may now lose far more because they bungled the paperwork and courts aren't tolerating that anymore isn't relevant in a discussion of general principles; even in the unlikely event that the companies foreclosing weren't the real owners of the mortgages, someone was -- or is Ann going to claim that the fellow had been sending in payments to those firms even though he hadn't really borrowed from anyone?
I get a loan for 200K with zero down:
I then refi twice and a equity line over the next 3 years adding 300K to my initial loan. Now I owe 500K, cannot make my payments, have no money left over from my ATM withdrawal and expect a loan mod so that I can stay in my house.
Do we really expect the finacial lenders to make loan mod's in this and related situations?
No one seems to have noted explicitly that the fact that the borrowers have not yet missed a single payment is pretty good evidence that they are not unable to handle the payments.
So why are they asking for a mod? Because they're having to cut back on other expenses? Can't afford gas for the big speedboat? Or gas to tow it to the lake, and rent for the condo at the lake? Or is it payments on the lakeside second home they thought was a sure-thing investment?
If it's that they're already living as frugally as they can, and are facing a reset that's beyond their means, why don't they include their budget etc. and a clear description of that with their request for a mod? And are they typical Alt-A borrowers who inflated their income (or allowed their mortgage broker to do that) by 50% to get a home they could barely afford even with a pay-option ARM -- in which case it's unlikely they're going to be able to afford it even with a mod?
A point I forgot to mention above regarding the self-employed fellow Ann wrote about: When my wife and I divorced, her lawyer suggested she should search for hidden bank and securities accounts, and was amazed when she replied, "He's not that kind of man!" (And I'm not.) Seems the lawyers' experience is that most small businessmen have such stashes hidden from their spouses. Perhaps the banks' demands for payments that seemed unreasonable based on the claim of 50%-reduced income were based on belief that the fellow in question might have such hidden assets.
So my friend in Wyoming finally moved out last month. It was 2 years from first missed payment to true foreclosure (he didn't own the place- his uncle did). He saved a bunch of money (since his uncle wasn't an ass and stopped charging rent) and now can do the move and first/last on another place with quite a bit to spare in the bank. BTW he's disabled on fixed income.
Granted I'm way too tight to get into a mortgage I wasn't sure we could handle on a single income but...
If I had $40k in CC loans, and stopped being able to make loans on my new 0% down house in the central valley, I'd be applying those mortgage payments to my CC loan. Start selling the furniture and the TV (since there's no cable) to make moving out easier. Keep the larger gas guzzler (you can't sell for peanuts) to move stuff to a rental (or down by the river;) when necessary. Then even if the rating goes to 500 I keep paying the cards till they throw me out. Might be liable for a second, but at least still be a going concern.
Of course I'm not sure most folks who got them selves into this would follow such advice, since about the time I mention cutting cable TV off their heads would explode.
"If anyone is "deciding" (rather than being forced by simple inability to pay) to become delinquent, you'd think it would most likely be the prime borrowers."
If I were a prime borrower that bought a bubble house, I would be very inclined to play a game of chicken with the servicer. For one thing, a prime borrower may have better employment options, make more money, be more financially sophisticated, etc. In other words, they may have a much better idea of what time it is, and what the options are. This doesn't mean they will always win this game of chicken, but it may mean that they will try this game more often than others. All of this lends support to the concept that lower prices, in and of themselves, will absolutely lead to more foreclosure and more lower prices. There was a time not too long ago that most people thought a bad employment picture is the primary driver of foreclosure.
There's this thing called disability insurance. There's also this thing called mortgage disability insurance, so that your mortgage payment will be paid if you are disabled. So you have a self employed client without insurance, with two homes? I have nothing to do with the banking industry, and I think your post is completely off the mark and nothing more than blame shifting.
jcsc, what you meant was 'I haven't priced any of these insurance-industry products that have a mixed rate of actually paying claims, but your client should have them'.
it is extremely rare for a servicer to begin foreclosure proceedings until a loan is 90 days or more delinquent. Why is that? Because most loans with a 30- or 60-day delinquency cure themselves. If you want servicers to conclude that default is imminent the moment a borrower becomes one payment behind...
Tanta, it may be accurate that historically, most 30 and 60 day delinquents have cured themselves. However, due to LTV ratios greater than 1 being far more common in some markets, lenders are being irrational to assume that these cures will continue as expected.
As the relative that the guy in Ann's office called for a bridge loan--and if it's not him, close enough for government work to my brother in law--I wasn't willing to 'lend' the money to 'cure the problem'. Because the alternative is not leaving my niece homeless, but helping him to grasp that a responsible parent who is upside down in a house packs his kid's stuff and moves to a rental he CAN afford. The problem is not that he's behind on the Ponzi scheme, the problem is the scheme itself required the house to appreciate to be worth what he owes.
If the payments and penalties he's behind by were the critical factor, it would be a whole different story; the reality is that 'you gotta help or we're going to lose the house' is still a distress call but no longer one that requires me to write a check. And I'm not special. I'm one of millions of ants who earned, saved and planned for housing we can and will either make payments on or sell for a gain.
My point is that the grasshoppers have no skin in the game in many cases, so expecting them to be as successful hitting up their ant relatives as was the case 10 years ago is not rational.
So, basically prime borrowers who saved 20% and can afford their houses and used rationality in their purchasing decision are going to get screwed on value because of the d!ck-heads on the margins of the market who screwed everything up? I hope foreclosures become big, fat, hairy black marks on credit reports that prevent these people from seeing credit for a long, long time. But it probably won't.
Maybe someday soon we'll be back to an interest rate environment that rewards savers by actually offering them a return that exceeds inflation. However, more people need to lose money before the appropriate risk premiums get prices in.
Assuming for the moment that this is a good faith explanation, the downside effect is that the homeowner gets discouraged and goes to see a lawyer.
The owner tells the lawyer "I can't afford it since they raised the payments." They often add "I've tried to sell, but no one will pay enough to clear the mortgages." They finish "If I had the original payment back, I could afford it." or "I just want out."
The lawyer tells the owner: 1) based on our experience so far, the banks aren't negotiating, it appears to be a total waste of time and money to even try; 2) to stop paying and (in recourse states) file Chapter 7. Live there for free as long as you can to save money, and get on with your life.
I've been in a number of these conversations, and privy to the back end, where the Chapter 7 trustee can't negotiate a short sale either, and the bank forecloses.
My personal favorite lender "good faith" negotiating tactic is the bank seeks and obtains a foreclosure judgment while the owner fills out and submits the voluminous documents required to request a modification. The bank sits on the application until the sheriff's sale is pending, before denying the request. But, they tell the homeowner that they may reconsider, so call us every day to check back. The poor fool[ed]home owner does so, not realizing that the whole point of the exercise is to provide false hope and avoid a bankruptcy.
P.S. I forgot the part where the owner says that they have exhausted their savings and/or borrowed as much as they are allowed against their 401K to make mortgage payments.
I haven't read the other comments, so apologies if this has already been said, but the 90-day foreclosure suspension seems most likely to be to eliminate the potential dis-enfranchisement of distressed borrowers who are under too much duress to change their addresses on their voter registrations in time to not have their vote challenged, thereby set aside into limbo until after the victors have been announced. This is about voter challenges, first and foremost, they just can't say that.
Not all lenders require you to be late to consider you for a modification. Agreed, it sure does help, but if you can verify pending hardship - ARM about to adjust or some of event that will shortly prevent you from making that same payment, it can happen. Guys like Countrywide, Indymac, and Wachovia won't go for it, but you're wrong if you state that no lender will modify for a person current on their payment. The Obama plan encourage a proactive approach, so who knows what will happen in a few short months.
We see nearly as many prime loans being modified as subprime's now. We tend to market in areas where the average house is $150K under water, so if hardship can be met, and the borrower wants to stay in the home and can make a payment if made affordable, that person has a helluva shot for a modification. Determining what 'affordable' is becomes the critical step, and it needs to be a cheaper option than foreclosure, and a quick NPV calculation comparing both should tell you that. If it is cheaper, then the choice is easy. Modify. You just need to get it through the nightmare that is loss mitigation, though. And that's where most people fail. Lots of times the loss mitigation clerks lost some of the documents necessary and your file is sitting around, never to be sent to the next step in the process. Wonderful, eh?
I like workouts. I just had a workouts.
Maybe because 90 days from now, the 'elections' will be over?
["we won't commit now to what we might or might not do if you do decide to miss a few payments."]
There are a number of issues here.
First, borrowers seem to believe that this is a quick process.
It is not.
Second, no matter WHAT the person at the call center says, your workout is subject to review.
The person who answers the phone is not a decision maker, and they have a script to follow.
Third, just because the customer service rep takes your information and says that they'll review it for a modification, doesn't mean that you're going to get one.
The prevailing perception seems to be that all you have to do to get a loan mod is ask for one.
The mortgage industry has gone a long way to reinforce this perception, all the "helping borrowers to stay in their homes" rhetoric.
When told they don't qualify for a mod, then come the cries that "they're not helping anybody."
[Certainly, proponents of this silly 90-day foreclosure moratorium for the GSEs need to explain why, exactly, they think that the number of successful workouts per delinquent loans will increase simply by eliminating foreclosure starts or delaying foreclosure completions. ]
A number of states have already tried this.
It's been tested plenty... is there any data?
Is there any evidence, ANY, that this improves loss mit results?
Are short sales considered mods? Because on the short sale front, anecdotes are actually threatening to become data. Long delays. No communication.
I live in a two-step state, where the P&S and all the dirty work happens after the initial offer is accepted. So I'm not talking about the initial stage, where a bank is deciding whether to accept a short sale at all, or at what price. That part's done.
I'm talking about not returning phone calls, ever. Noncompliance with non-negotiable statutory requirements for the transfer of residential property, such as various certificates and mandatory inspections. Cancellation of deals on the day of closing without explanation. Complete failure to cooperate with buyer's attempts to get financing.
All in the context of no phone calls, no communications.
So, I'm sure many of the anecdotes about the mod squad are garbled reports by borrowers who don't remotely understand the process. But in the case of short sales, there's a lot of indications that some lenders aren't even cooperating on the easy stuff.
Evetually, the OCC is really going to have to refine these metrics
what happened to your spell-checker?
Are short sales considered mods?
No. They are not.
A modification is a permanent change to the terms of the original note, such as reducing the interest rate or balance, extending the term, changing from ARM to fixed, etc. You only do that when the idea is that the loan will continue.
A short sale does not change the terms of a loan, it changes the required payoff to get the lien released.
what happened to your spell-checker?
Apparently it went to Cincinnati and ate too much chili.
Is there any evidence, ANY, that this improves loss mit results?
None that I have ever seen.
If someone is at risk of defaulting aren't the two options something like: a) modify the loan, or b) loan is defaulted?
So one way or another the loan will get modified... oy!
factoid from Lehman Brothers: for securitized subprime loans, ~70% of modifications so far have been on loans that were current the month prior to modification. (this is true because while the percentage of current loans that gets modified is lower than the percentage of 90 day DQ loans that get modified, the current bucket is much larger.)
for securitized subprime loans
Would those be the Hope Now Teaser Freezer ones?
Since the Glorious September Revolution should be consummated by the end of this weekend, foreclosures will soon be decreed thing of the past; just like capitalism. Romper Room rules will be officially in effect throughout the USSRA: losing will no longer be allowed. Bankers will keep their banks, peasants will keep their homes. Long live the indissolute union of the Banking Class, the Peasantry, and the Intelligentsia under the enduring leadership of our Great Leader Miss Sarah, who will let no Banker or Peasant so away with an empty Easter egg basket. And any misguided reactionary bourgeois elements who refuse to stop smoking their opium-for-the-masses about self-regulating markets will be sent to re-education camps in certain an archipelago in the Bering Stait.
Tanta's explanation is spot on.
To clarify something -- why some people hope/expect a workout before a delinquency -- I think I can explain why: many are trying to preserve their FICO score. They're up to their gills in debt, generally current, and need a few hundred dollars a month breathing room. But, when they're told that they need to be 90 days delinquent, they come into our office for a consultation (I work in a BK law firm) to see if that's "true". Yes, it is generally true. And your FICO score will drop to 570 very, very soon. So, now you'll be 90 days late on a property that's upside-down, and a FICO score of 570, and you have $40,000 in c/c debt. Hey, BK becomes an attractive an option, then. Of course, if they have only a small amount of c/c debt, then no BK and just walk away.
Lender "sanity" -- behavior in normal times -- is suboptimal behavior these days. With up-side down property values, lender attitides of "no workout unless severely delinquent" are driving many people straight into foreclosure or BK because once severely delinquent, their FICO is trashed so they just don't care any more.
Just my anecdotal evidence.
If someone is at risk of defaulting aren't the two options something like: a) modify the loan, or b) loan is defaulted?
No. If someone is at risk of defaulting, the option is to a) do some kind of a workout, including but not limited to modification or b) let it default and then foreclose.
I'm a little amazed at this process. Why wait for 90 days or more of delinquency before beginning discussions about a workout? It's kind of like calling the fire department to report a fire in your home and they say, "Call me back when the second story of your house is fully engulfed?"
I think prevention--where reasonable--would be a far better approach. I suspect that a number of potential candidates for a workout can see that they can not afford an ARM reset or, in fewer cases, their economic situation may have deteroriated to the point where they know they can not make current payments in a month or two. Wouldn't it make more sense to start the workout process then? I'm not saying each case should result in a workout, but it could actually save both parties money.
Then again, a lender may find the prospect of months of late payment fees, not to mention workout fees, more to its advantage. And that's disgusting.
Would those be the Hope Now Teaser Freezer ones?
actually there have been relatively few Hope Now Teaser Freezer's done.
Why wait for 90 days or more of delinquency before beginning discussions about a workout? It's kind of like calling the fire department to report a fire in your home and they say, "Call me back when the second story of your house is fully engulfed?"
I think it's more like waiting to call the fire department until there is actually a fire. As opposed to calling the fire department and saying, someone is lighting candles in this house. You'd better show up just in case someone knocks those candles over and doesn't get the fire put out on his own.
Terry,
Prevention to me is like, don't make stoopid loans. There used to be people who prevented just that, and they were mostly shown the door.
Free money because you can print it and trade it to poor people for cool stuff and valuable services made it look like prevention was the greater of two evils. But you can't unring the bell. The question now is, for whom it tolls. Ask not!
"It honestly really shocks me that people would expect a servicer to commit to giving you a deal prior to delinquency: that is simply inviting people to withhold payments in order to get their interest rates reduced. Why would anyone expect a servicer to do that?"
Fraud all the way up and fraud all the way down it's the American way.
Loan modifications are a complete joke. They do not address the problem, which is that the collateral is not worth what is owed against it.
People underestimate the extent to which a borrower becomes apathetic to paying a loan in which the amount exceeds the value of the property.
The only loan mods that will ever work are principal reduction mods in which the principal is reduced in the order of 40-50%. Having said that, it will never happen, because once the neighbors catch wind, then they will stop paying their loan. It's a vicious cycle of apathy, greed, and lack of accountability.
Politicians tend to love them because they look great on paper.
401 Authorization Required
So, now you'll be 90 days late on a property that's upside-down, and a FICO score of 570, and you have $40,000 in c/c debt.
Well, you know, the mortgage lender can't make the $40K in card debt go away. Not unless you think these people should be getting "cash out" modifications.
The trouble is that the borrower you describe is so likely to redefault after a mod--which just costs even more to the lender--that it's hard to know why you'd want to do one in the first place. BK is their best option. It's probably the lender's best option, too.
Tanta writes:
Prevention to me is like, don't make stoopid loans.
This is why people are looking for workouts. Once they see the servicer/bank in a no-win situation they think they might be able to cash in. Seems like rational behavior. This is not to say honorable behavior.
Whether you as a borrower are in trouble or not, most people would prefer a large savings if they could get one.
People with $3 million contracts sometimes hld out for $5 million contracts. They aren't in trouble at $3M, but they want more.
So prevention is the key. Too bad we have allowed the system to get so stoopid.
If the lender can get it out of their option arm portfolio into a GSE conforming loan, the likelihood of a relatively quick short sale / workout increases.
ote: "Hope Now Rate Freeze" is often reported as a specific type of modification in remittance reports, separate from "rate reductions" and everything else, and they're almost always at the bottom of the list in terms of the number done.
As opposed to calling the fire department and saying, someone is lighting candles in this house.
Not sure that is a good analogy, but I get your point.
The issue I see is that you have people who honestly want to stay in their house, but are smart enough to realize that a) they are seriously underwater already (so they can't get a traditional refi), and b) they can't afford the payments after their loan fully recasts (they were on option-arm making minimal payments). Maybe they've made a few payments by dipping into savings, but they know it is not sustainable. And yes, they are trying to avoid a big hit on their FICO.
Are you saying there is no value in discussing any potential mod at this point? That it would simply encourage people to try holding the bank hostage?
In my opinion, a process in which non-performing loans could be sold individually to a local investor would be the best solution to minimizing loss.
The logistics of the matter look far too difficult though.
It's kind of like the two parties got drunk, met, fell into bed together at 2AM, and now its daylight and one of them has sobered up and isn't in love with the other party anymore. The one that's still drunk asks, what's wrong honey? You agreed to all my wishes last night.
I thought it was true love.
Terry-
It depends on if the workout party holds the loan or is a servicer. There are lenders actively doing exactly what you propose. Their motivation is to get the loan off of their books onto the GSE's. They are willing to take a write-down now, rather than risk a default later.
And dp, modifications are not a joke if the lender is writing down the loan amount to one that is affordable and makes it FHA or GSE conforming.
The joke is the knuckleheads who are walking away with hugely subsidized loans that are now underwritten by the Chinese and Russians and guaranteed by the US taxpayer.
In summary, go have fun, party with the payment for 90 days and then, call your douche lender. sheesh
Apologies, but talk of modifications and foreclosures just seems so empty in the bigger picture. What any particular bank is doing for any particular borrower in regard to their particular loan... it's driving me nuts.
I trust that Tanta is master of the minutia, but we need people like this working on the large strokes. Enough analysis, enough paralysis. Tantas and engineers, please find each other and build a solution.
I suspect that a number of potential candidates for a workout can see that they can not afford an ARM reset or, in fewer cases, their economic situation may have deteroriated to the point where they know they can not make current payments in a month or two.
I'm not saying that people in situations like that don't get mods. My emailer seems to think they don't. But obviously some mods like that are happening (see bacon dreamz's data from Lehman).
The thing is, with this "economic situation has deteriorated," you have to demonstrate that. That means either you lost income or non-discretionary expenses increased due to factors beyond your control. Anybody can work up the budget, gather the income and asset docs, write the hardship letter, and send the package in to the servicer. It's not like if you do that, they then also force you to go 90 days down.
People who are being told that they won't be considered for a mod unless they're delinquent are usually the ones who haven't done anything--they just called out of the blue and asked for a mod. Without some other evidence of imminence of default, the servicer has to use delinquency to indicate that.
Yes, I know... minutiae
While I mostly agree with Tanta's observations here, I can't help but pick a few nits.
1) Sometimes you can establish that a borrower is "in trouble" before they are 90 DQ. All sorts of cash flow shocks are demonstrable before 3 payments are missed - a temporary layoff that is exhausting, but has not yet exhausted, savings - a massive payment reset that happens tomorrow, etc. Especially now with the high volume of toxic loans out there, it ought to be possible to establish that a borrower is in trouble before the magic 90 DQ. But that was the historical benchmark, and I suspect that servicers are so swamped now that they aren't about to relax a rule so as to expand their volume.
2) It was the case most 30 DQs didn't roll to 60, and even most 60's didn't roll to 90. But the 30 to 60, and 60 to 90, roll rates for subprime, Alt-A, and even prime in the bubble zones are now way beyond what we've seen in the historical record. It's a good bet today that more than half the 30's in those categories will roll to 90.
In Dallas Fort Worth we had a similar but smaller bubble in the 1970's and it took all the way to 2000 for prices to recover. My mother has a house bought in the 1992 bust for 72000 now 16 years later 72000 looks pretty good.
And dp, modifications are not a joke if the lender is writing down the loan amount to one that is affordable and makes it FHA or GSE conforming.
Not a banker,
That's my point. They aren't and I really doubt that they will. And the reason they won't is because once you reduce one guys principle value, well, there goes the neighborhood.
Uncle Billy-
The powers that be have figured this out, it is done.
To recap:
The Fed's alphabet soup has monetized the securities.
Anyone without access to the windows have sold off positions at 5,10, 15 cents on the dollar.
Lender have ceased neg am loans. Option Arm are now priced with requisite risk.
Lenders that still have otpion arm portfolio's are their books are racing to refi them into conforming FHA or GSE loans.
The US Government has nationalized the mortgage underwriters to keep foreign investment as the liquidity base for mortgages.
As a borrower, you have leverage if you loan is in a portfolio with an option arm lender that is holding the loan and has not been securitized. WAMU, Countrywide, WB etc....
If your loan is already securitized, you have effectively lost your leverage. Therefore, you need to prove hardship, and convince the holder of the note they are better off working it out today, than taking chances later.
If your loan is in one of the CDO portfolio's sold off for pennies on the dollar, good luck.
It honestly really shocks me that people would expect a servicer...
A LOT of things that servicers do used to shock me. Now I understand that it's just part of doing business. Hence the $28 million "cost of doing business" fine that BS and EMC just agreed to.
http://www.ftc.gov/os/caselist/0623031/080909emcmortgstipfinljdgmnt.pdf
One of many parts of the problem is that borrowers are getting entirely too many different stories from the "experts." At the onset of FHASecure and HOPE Now, for instance, borrowers needed to be current in their payments for the prior six months before any rate reset to qualify. Unfortunately, the web appears to have been scrubbed of the "official" announcements so all I have to cite is blog entries: Real Estate Blog - FHASecure or Insecure?
"3) The current loan does not have to be delinquent to qualify.
4) The current loan can be delinquent, BUT the delinquency must have occurred because the current mortgage rate was adjusted or reset. Mortgage payments must have been current for the past 6 months prior to the reset.
So anyone knowing that they weren't going to be able to afford an upcoming reset could have started looking for a refi? Not according to what you're saying here, Tanta.
Now, for the "official" version, taken directly from HUD updated 09/13/08:
Error
FHASecure Frequently Asked Questions for Homeowners
Eligibility
How far behind can you be on a mortgage to qualify? What about more than 90 days?
There isn't a limit on how far behind you can be on your mortgage or how many payments you've missed. Whether you're current, one month behind or multiple payments behind, the amount you can refinance will depend on the value of your property and how much you owe and if the lender, or another eligible source, is willing to take back a second mortgage to help bridge the gap between what is owed and your home's value.
Must I be delinquent, and for a certain period of time, in order to be eligible for FHASecure?
No, and FHA encourages homeowners facing reset to refinance before they fall behind on their mortgage.
I have a fixed rate mortgage and have fallen on bad times. What about me?
Homeowners facing financial difficulties and unable to make their mortgage payments are strongly encouraged to contact their lender.
Many lenders offer assistance to their borrowers to help them bring their mortgage current.
Homeowners may also want to contact a HUD-approved housing counseling agency to find out about programs that may be able to assist them, especially if communication with the lender has broken down.
To find a HUD-approved housing counseling agency, please call 1-800-569-4287 or search online.
And from:
Fact Sheet: FHA to Provide Additional Mortgage Assistance to Struggling Homeowners - HUD
Homeowners May Already Be Eligible For Assistance
Families should not wait to seek mortgage relief. Right now, homeowners can determine if they are already eligible for mortgage assistance through FHASecure, FHA's existing refinancing program. They can obtain information through any of the following options:
Sustainable, Affordability Homeownership
Hope for Homeowners maintains FHA's long-standing requirement that new loans be based on a family's long-term ability to repay the mortgage. FHA only allows owner-occupants to be eligible for FHA-insured mortgages. Borrowers must also meet the following eligibility criteria:
* Their mortgage must have originated on or before January 1, 2008;
* Their mortgage debt-to-income must be at least 31 percent;
* They cannot afford their current loan;
* They did not intentionally miss mortgage payments; and
* They do not own second homes.</i>
Oh wait, here's the rub:
Voluntary Lender Participation
FHA will continue to offer lenders an alternative to foreclosing on borrowers. Similar to FHASecure's recent expansion, lenders will be encouraged to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property. In many cases, reductions in principle will cost lenders less than the losses associated with foreclosure.
Somebody make up their mind and stick with an across-the-board answer. Would. You. Please.
dp-
Depends on who holds the note. As pointed out above, if you are dealing with a servicer of a CDO portfolio sold recently for pennies on the dollar, you are probably right.
On the other hand, if you are dealing with a motivated lender, they are in fact doing just that.
) Sometimes you can establish that a borrower is "in trouble" before they are 90 DQ.
Well, of course you can. That's why I said it often will depend on what you told the collector.
My guess is that people who call up and say, I'm current right now but I just got a layoff notice today and I only have enough savings for one more payment and can we do something will get referred to loss mit. They'll still be told they have to send in the layoff notice and the bank statements and the household budget, but that can be done before they're 90 days down.
Some folks in that situation may have missed a payment already. But the collector will be calling before it's even 30 days late. I can't tell from these anecdotes like the one I began the post with that these were folks who told the collector that they just lost their jobs or something. I got the impression these are folks who just called up and asked if they could get their rates or balances reduced.
Certainly I agree that mild DQs are rolling to serious more than was historically the case. But you're still not going to find anyone filing FC at 30 days down just because cure rates are dropping. In the absence of other verified information one way or the other, you just can't conclude that a mild delinquency means default is imminent. That was the only point I was trying to make. I wasn't trying to argue that there are no other ways to get that information.
ot a banker:
Wow, you rattled off solutions like Roubini rattles off problems.
I like it!
Now, do you have a list for staving off massive unemployment and industry grinding to a halt?
Uncle Billy-
I didn't say it was going to work!
damn you not a banker
ot a banker,
I don't doubt you, I just haven't seen it personally.
Unfortunately, what I see on a daily basis are borrowers who were financially shakey when they got the loan, and after moderate to minimal hardship, are no longer able or willing to continue payments.
If you were down to your last $2,000, and your mortgage payment was $1800, would you make the mortgage payment?
That question is what I see every day.
So anyone knowing that they weren't going to be able to afford an upcoming reset could have started looking for a refi? Not according to what you're saying here, Tanta.
I wasn't saying anything about refis, Mike.
I also wasn't specifically talking about rate resets on ARMs, either.
All I had to do was read the first couple sentences to know it was Tanta rather than CR. It was obviously another whining apology for loan servicers.
(1) "First, what are "borrowers in trouble"? If they are current and have never been late on a payment, what kind of "trouble" are they in?"
Try job loss.
Try sudden illness that will mean loss of income and/or no health insurance
Try they have been paying the mortgage by skipping the electric bill this month or skipping the car payment that month or not paying the car insurance..... Looks good on the mortgage but in fact it can not be sustained.
(2) Quit APOLOGIZING FOR THOSE YOBOS. They do not want to cooperate. They do NOT want to discuss modifications.
I had a client who had a heart attack and 2 coronary surgeries. Being self-employed, that rather put paid to paying the mortgage. Lenders (and particularly Citiresidential) would not talk. Would not talk when it hit 90 days except to whine they wanted all the past payments caught up over 3 -6 months.
They finally talked when it hit 1 month out from foreclosure. The best solution would have been to simply add the arrearage to the back of the loan and extend the loan for 6-9 months over the life of the loan.
The man was getting back to work but his income was about 1/2 what it had been and would be increasing.
They wouldn't get reasonable. On his primary home, the lender wanted it all in 9 months - basically doubling his payments with fees and charges - and this with an LTV of 40% (that is right - 60% in current value equity.) On the 2nd home (had been his grandfather's home and he bought it from the estate), Citi wanted all arrearages in 9 months - again nearly doubling the payment. Of course that house is now upside down by 33% of the loan.
They wouldn't get reasonable so I solved the problem. I had him file a CHpt 13. Lender on primary will get told to suck it up and spread the arrearages over 36 -60 months. Citi will get it shoved up their (fill in the blank). The Court can and will cram down the 2nd home loan by 66%, reduce the interest rate to current prime and basically tell them to go away, (Assuming of course that the "trustee" of the CDO bundle can ever produce the documentation of how they acquired the loan. Nothing has ever been recorded aside from the original mortgage - no assignment of the mortgage, nothing. And if they can not produce the documents before the bankruptcy is finished and discharged, they will first get kicked out for not being able to prove they own the loan and then the mortgage will get discharged because no one who can prove they own it will show up. Now there is an ending they deserve for being unreasonable - the entire mortgage is cancelled and discharged by the court.)
So Tanta, you precious loan servicers are NOT reasonable, rational or much of anything else.
dp-
Nor do I doubt you. Given the number of loans securitized vs those that are not, I would guess your scenario's are closer to the norm. Unfortunately.
Ann, sounds like you will shortly have more clients than you can shake a stick at.
But hey, soon we will all be subprime, and get a giant Fannie fred bailout.
Tanta, my pennies on the dollar loss mit strategy is looking more likely.
Someday this war's gonna end...
All I had to do was read the first couple sentences to know it was Tanta rather than CR.
And when it says "by Tanta" right under the title. How do you do it, Sherlock?
Try job loss.
OK, I'll try. Why would you modify a mortgage for someone with no income?
This is not a rhetorical question. I have received no data--nor have you--that people who lose their jobs aren't being given forbearances or repayment plans or DILs or short sales. Or that people who lose their jobs aren't just letting the house go because they know they can no longer afford it.
However, they aren't necessarily great candidates for a modification, at least not until they're employed again.
Quit APOLOGIZING FOR THOSE YOBOS. They do not want to cooperate. They do NOT want to discuss modifications.
And your proof for those categorical claims is one anecdote?
I am not apologizing for bad servicers. You, on the other hand, are making sweeping generalizations based on one story you know. Which is basically what we've come to expect from you.
has there been any discussion on calculatedrisk or any other blog, about what will happen if the mortgage rates were pushed to around 5%??
can some one please point me to a link where it has been discussed? thanks..
i am going by the assumption that since government is going to be the end buyer of mortgage...they can make the rate go below 5% to help the housing and financials to help the economy?? comments please.
thanks..
aram: that's easy... almost no effect.
30 year fixed is at 5.75. I don't see a 3/4 drop doing much.
note: "Hope Now Rate Freeze" is often reported as a specific type of modification in remittance reports, separate from "rate reductions" and everything else, and they're almost always at the bottom of the list in terms of the number done.
No effing way are 70% of mods on current subprime securitized loans have nothing to do with Hope Now.
I smell a data integrity/data entry issue.
I have a feeling somewhere there is a drop-down box that is laid out something like this:
Select Modification Type:
1) Rate Reduction
2) Principal Reduction
3) Change in term
.....
14) HopeNow Teaser rate freeze
Most humans entering this data are just is selecting "1" as soon as they see the word "rate".
Everyone here is making sweeping generalizations. I'm sure some of the people calling before getting behind in payments are in serious financial trouble. If they are, of course they should be required to document it. And I'm also sure some of the people are gaming the system. Before judging I'd like to hear stories from borrowers who do document their problems and the corresponding results from servicers.
Tanta you are spot on when you say "It honestly really shocks me that people would expect a servicer to commit to giving you a deal prior to delinquency: that is simply inviting people to withhold payments in order to get their interest rates reduced. Why would anyone expect a servicer to do that?"
Very true, but that argument cuts both ways. If a servicer won't give any modification specifics before delinquency then borrowers (some who really are in trouble) are incented to go delinquent. If borrowers really are in trouble, what do they have to lose? How does that help anyone?
Ann, thanks for that anecdote -- very helpful to hear from people in your situation!! This is going to get far worse than most of us imagine. I've heard rumors that the inability to provide documentation and to prove who owns these mortgages is what really has lenders quaking in their boots.
At this point, frankly I believe there is no good solution. Thus the problems will expand like a cancer, causing further job losses, further defaults, and eventually feeding on itself in a downward spiral.
The only question in my mind is whether the Fed fires up the printing presses to try to stem the oncoming disaster. The end result is no better -- it just changes what we can do to prepare.
Lee, this is the claim I was originally commenting on:
"and BTW, we won't commit now to what we might or might not do if you do decide to miss a few payments."
If you simply cannot make payments, you cannot make payments. There is no question of "incentives" one way or the other.
Because we were, apparently, talking about people who can "decide" to miss payments or not, we are in the land of incentives and disincentives.
Tanta,
what about the folks who bought with ARM for investment purposes?
I think the discussion of incentives/disincentives applies very well to them.
After all, they may decide to walk away due to the poor performance of their investment. If a rate reduction would bring them close to current market rents plus a small loss, more of them might be inclined to attempt to keep the property.
But hey, if they experience only serious disincentives, then walk away becomes the preferred strategy.
What I see right now is no discussion of keeping marginal investors out of the foreclosure stream.
Here in Phoenix, they are a major contributor to the foreclosure stream- of course a significant number may just be flipper frauds too.
Someday this war's gonna end...
But hey, if they experience only serious disincentives, then walk away becomes the preferred strategy.
How about a disincentive like an audit of the original loan app.?
One thing that jumps out at me is that this all comes down to judgement and staffing.
Tanta comes at this problem from a public policy perspective, attempting to find the best solution which can be applied across the board.
Ann comes at this situation, having seen the individual circumstances behind the statistics.
It seems to me that you have to have the broad policies, but the flexibility at the local level to make the optimal decision in each unique situation. Ultimately this requires a massive amount of individual attention, analysis of optimal loss mitigation approach, and the ability to tailor a custom solution in the best interest of the lender.
This will require MASSIVE manpower, additional staffing, and policies to mitigate abuse. Servicers do not currently have the resources (human, nor capital) to do this. Eventually we will see that the optimal public policy is to invest the resources required to make this individual attention required. But financially it will be infeasable. Checkmate.
I keep wondering. Why are we favoring foreign governments holding MBS over USA citizen deadbeats. I know, it's kind of a tough call, but I prefer to bailout USA deadbeats over foreigners.
OK - so the foreigners will get mad and refuse to buy US debt. This is a bad thing?
OK - so the foreigners will get mad and refuse to buy US debt.
Amongst other things.
No effing way are 70% of mods on current subprime securitized loans have nothing to do with Hope Now.
sorry, i should have been more precise. i didn't mean to imply that the Hope Now mod numbers were insignificant. they're just the minority compared to all the other types of mods being done (i.e. maybe 20-30% of the mods in a pool will be "Hope Now Rate Freeze").
The Butterfly Effect:
DEBKAfile, Political Analysis, Espionage, Terrorism, Security
Bacon, this has been troubling me:
Do you admire Francis Bacon, or do you actually dream about strips of fried meat?
Or both?
dp writes in response: OK - so the foreigners will get mad and refuse to buy US debt.
Amongst other things.
So we are prepared to give up because we can't imagine having to deal with our own problems?
Bring it on.
I didn't mean to sound cranky, comrade bacon.
It's just that OCC report drives me crazy for a number of reasons, not the least of which is the wierd way they defined 'alt-a'.
Thank you, Tanta. It drive me crazy that people won't consider secondary effects like the 'hostage' incentives. But then again, maybe I'm the irrational one for expecting people to be rational when all experience has shown the contrary.
Gavshire Hathaway writes:
One thing that jumps out at me is that this all comes down to judgement and staffing.
Tanta comes at this problem from a public policy perspective, attempting to find the best solution which can be applied across the board.
Ann comes at this situation, having seen the individual circumstances behind the statistics.
It seems to me that you have to have the broad policies, but the flexibility at the local level to make the optimal decision in each unique situation. Ultimately this requires a massive amount of individual attention, analysis of optimal loss mitigation approach, and the ability to tailor a custom solution in the best interest of the lender.
This will require MASSIVE manpower, additional staffing, and policies to mitigate abuse. Servicers do not currently have the resources (human, nor capital) to do this. Eventually we will see that the optimal public policy is to invest the resources required to make this individual attention required. But financially it will be infeasable. Checkmate.
Gavshire Hathaway | 09.13.08 - 1:31 pm
Spot on.
(Everyone has already had several collections calls by the 60th day of delinquency. If you refused to take those calls or refused to give a reason for your delinquency, you should not be surprised to find your "willingness to make a go of it" under some question.)
What if you called them first and got blown off because you weren't delinquent yet? I would think that would be a decent excuse for not answering the first few months of collection calls.
Oh, and FYI, fire departments generally take every call very seriously.
What if you called them first and got blown off because you weren't delinquent yet?
What if you called them first and said what?
Back again.
Tanta said:
The thing is, with this "economic situation has deteriorated," you have to demonstrate that. That means either you lost income or non-discretionary expenses increased due to factors beyond your control.
I am not judging whether a mod should be granted or not, obviously either or both sides could be (and in many cases, are and were) lying. However, to wait 90 days to start a process means probably 180 days until a payment is made or decision is made to foreclose. In the meantime, the borrower is running up big late fees if a mod is granted and the lender is not getting any income in the interval.
I would think an early and short process, whatever the outcome, would be to both parties advantage.
...[client] had a heart attack and 2 coronary surgeries. Being self-employed, that rather put paid to paying the mortgage. ...
When I started thinking about going into business for myself, I made sure my mortgage payment and basic living expenses could all be paid out of my wife's income. If I hadn't had a wife with a very reliable income, I wouldn't have gone into business for myself with less than nine months living expenses (including health insurance) in the bank.
The man was getting back to work but his income was about 1/2 what it had been and would be increasing.
Just how certain was the "would be increasing"? By how much? Might we not expect this poor fellow not to have quite as much get up and go as in the past?
... On his primary home, ... On the 2nd home (had been his grandfather's home and he bought it from the estate), ...
Uhhhhh ... you're in business for yourself, you don't have money in the bank to get through a long rough spot -- or else you don't have health insurance, so any major medical expenses will wipe you out -- but you take on another mortgage to buy a second home?
This fellow doesn't seem to have had very good business and financial judgment. Why should the lenders have thought when this started and the housing market hadn't yet deteriorated so much as now that they'd be better off modifying than foreclosing? That they may now lose far more because they bungled the paperwork and courts aren't tolerating that anymore isn't relevant in a discussion of general principles; even in the unlikely event that the companies foreclosing weren't the real owners of the mortgages, someone was -- or is Ann going to claim that the fellow had been sending in payments to those firms even though he hadn't really borrowed from anyone?
That the borrower is in trouble and is willing to make a go of it but needs some help.
I get a loan for 200K with zero down:
I then refi twice and a equity line over the next 3 years adding 300K to my initial loan. Now I owe 500K, cannot make my payments, have no money left over from my ATM withdrawal and expect a loan mod so that I can stay in my house.
Do we really expect the finacial lenders to make loan mod's in this and related situations?
No one seems to have noted explicitly that the fact that the borrowers have not yet missed a single payment is pretty good evidence that they are not unable to handle the payments.
So why are they asking for a mod? Because they're having to cut back on other expenses? Can't afford gas for the big speedboat? Or gas to tow it to the lake, and rent for the condo at the lake? Or is it payments on the lakeside second home they thought was a sure-thing investment?
If it's that they're already living as frugally as they can, and are facing a reset that's beyond their means, why don't they include their budget etc. and a clear description of that with their request for a mod? And are they typical Alt-A borrowers who inflated their income (or allowed their mortgage broker to do that) by 50% to get a home they could barely afford even with a pay-option ARM -- in which case it's unlikely they're going to be able to afford it even with a mod?
A point I forgot to mention above regarding the self-employed fellow Ann wrote about: When my wife and I divorced, her lawyer suggested she should search for hidden bank and securities accounts, and was amazed when she replied, "He's not that kind of man!" (And I'm not.) Seems the lawyers' experience is that most small businessmen have such stashes hidden from their spouses. Perhaps the banks' demands for payments that seemed unreasonable based on the claim of 50%-reduced income were based on belief that the fellow in question might have such hidden assets.
So my friend in Wyoming finally moved out last month. It was 2 years from first missed payment to true foreclosure (he didn't own the place- his uncle did). He saved a bunch of money (since his uncle wasn't an ass and stopped charging rent) and now can do the move and first/last on another place with quite a bit to spare in the bank. BTW he's disabled on fixed income.
Granted I'm way too tight to get into a mortgage I wasn't sure we could handle on a single income but...
If I had $40k in CC loans, and stopped being able to make loans on my new 0% down house in the central valley, I'd be applying those mortgage payments to my CC loan. Start selling the furniture and the TV (since there's no cable) to make moving out easier. Keep the larger gas guzzler (you can't sell for peanuts) to move stuff to a rental (or down by the river;) when necessary. Then even if the rating goes to 500 I keep paying the cards till they throw me out. Might be liable for a second, but at least still be a going concern.
Of course I'm not sure most folks who got them selves into this would follow such advice, since about the time I mention cutting cable TV off their heads would explode.
3 seems to make the most sense:
"If anyone is "deciding" (rather than being forced by simple inability to pay) to become delinquent, you'd think it would most likely be the prime borrowers."
If I were a prime borrower that bought a bubble house, I would be very inclined to play a game of chicken with the servicer. For one thing, a prime borrower may have better employment options, make more money, be more financially sophisticated, etc. In other words, they may have a much better idea of what time it is, and what the options are. This doesn't mean they will always win this game of chicken, but it may mean that they will try this game more often than others. All of this lends support to the concept that lower prices, in and of themselves, will absolutely lead to more foreclosure and more lower prices. There was a time not too long ago that most people thought a bad employment picture is the primary driver of foreclosure.
Here is one. A couple I know had a bad steak where the husband was without a job for 3 months.
They made no payments and while they can make the normal payments now they are unable to catch up in one payment.
The lender refuses to take any payments less than all at once or to catch up in 3 months which is impossible.
They are now in "Negotiation" but no legal proceedings have comenced.
All that would need to be done is add the payments to the principal as they have been saving the payments which the lender refuses to take.
But they have not moved for months.
Ann,
There's this thing called disability insurance. There's also this thing called mortgage disability insurance, so that your mortgage payment will be paid if you are disabled. So you have a self employed client without insurance, with two homes? I have nothing to do with the banking industry, and I think your post is completely off the mark and nothing more than blame shifting.
oops, wrote 'post' meant 'comment
jcsc, what you meant was 'I haven't priced any of these insurance-industry products that have a mixed rate of actually paying claims, but your client should have them'.
it is extremely rare for a servicer to begin foreclosure proceedings until a loan is 90 days or more delinquent. Why is that? Because most loans with a 30- or 60-day delinquency cure themselves. If you want servicers to conclude that default is imminent the moment a borrower becomes one payment behind...
Tanta, it may be accurate that historically, most 30 and 60 day delinquents have cured themselves. However, due to LTV ratios greater than 1 being far more common in some markets, lenders are being irrational to assume that these cures will continue as expected.
As the relative that the guy in Ann's office called for a bridge loan--and if it's not him, close enough for government work to my brother in law--I wasn't willing to 'lend' the money to 'cure the problem'. Because the alternative is not leaving my niece homeless, but helping him to grasp that a responsible parent who is upside down in a house packs his kid's stuff and moves to a rental he CAN afford. The problem is not that he's behind on the Ponzi scheme, the problem is the scheme itself required the house to appreciate to be worth what he owes.
If the payments and penalties he's behind by were the critical factor, it would be a whole different story; the reality is that 'you gotta help or we're going to lose the house' is still a distress call but no longer one that requires me to write a check. And I'm not special. I'm one of millions of ants who earned, saved and planned for housing we can and will either make payments on or sell for a gain.
My point is that the grasshoppers have no skin in the game in many cases, so expecting them to be as successful hitting up their ant relatives as was the case 10 years ago is not rational.
So, basically prime borrowers who saved 20% and can afford their houses and used rationality in their purchasing decision are going to get screwed on value because of the d!ck-heads on the margins of the market who screwed everything up? I hope foreclosures become big, fat, hairy black marks on credit reports that prevent these people from seeing credit for a long, long time. But it probably won't.
PhoenixRising,
What you meant was 'people who fall into high risk categories resent having to pay risk premiums.'
Personally, I'm mildly enteratained by all this.
Servicers losing money, woohoo!
Lenders losing money, woohoo!
Borrowers losing money, woohoo!
Maybe someday soon we'll be back to an interest rate environment that rewards savers by actually offering them a return that exceeds inflation. However, more people need to lose money before the appropriate risk premiums get prices in.
Assuming for the moment that this is a good faith explanation, the downside effect is that the homeowner gets discouraged and goes to see a lawyer.
The owner tells the lawyer "I can't afford it since they raised the payments." They often add "I've tried to sell, but no one will pay enough to clear the mortgages." They finish "If I had the original payment back, I could afford it." or "I just want out."
The lawyer tells the owner: 1) based on our experience so far, the banks aren't negotiating, it appears to be a total waste of time and money to even try; 2) to stop paying and (in recourse states) file Chapter 7. Live there for free as long as you can to save money, and get on with your life.
I've been in a number of these conversations, and privy to the back end, where the Chapter 7 trustee can't negotiate a short sale either, and the bank forecloses.
My personal favorite lender "good faith" negotiating tactic is the bank seeks and obtains a foreclosure judgment while the owner fills out and submits the voluminous documents required to request a modification. The bank sits on the application until the sheriff's sale is pending, before denying the request. But, they tell the homeowner that they may reconsider, so call us every day to check back. The poor fool[ed]home owner does so, not realizing that the whole point of the exercise is to provide false hope and avoid a bankruptcy.
P.S. I forgot the part where the owner says that they have exhausted their savings and/or borrowed as much as they are allowed against their 401K to make mortgage payments.
I haven't read the other comments, so apologies if this has already been said, but the 90-day foreclosure suspension seems most likely to be to eliminate the potential dis-enfranchisement of distressed borrowers who are under too much duress to change their addresses on their voter registrations in time to not have their vote challenged, thereby set aside into limbo until after the victors have been announced. This is about voter challenges, first and foremost, they just can't say that.
Not all lenders require you to be late to consider you for a modification. Agreed, it sure does help, but if you can verify pending hardship - ARM about to adjust or some of event that will shortly prevent you from making that same payment, it can happen. Guys like Countrywide, Indymac, and Wachovia won't go for it, but you're wrong if you state that no lender will modify for a person current on their payment. The Obama plan encourage a proactive approach, so who knows what will happen in a few short months.
We see nearly as many prime loans being modified as subprime's now. We tend to market in areas where the average house is $150K under water, so if hardship can be met, and the borrower wants to stay in the home and can make a payment if made affordable, that person has a helluva shot for a modification. Determining what 'affordable' is becomes the critical step, and it needs to be a cheaper option than foreclosure, and a quick NPV calculation comparing both should tell you that. If it is cheaper, then the choice is easy. Modify. You just need to get it through the nightmare that is loss mitigation, though. And that's where most people fail. Lots of times the loss mitigation clerks lost some of the documents necessary and your file is sitting around, never to be sent to the next step in the process. Wonderful, eh?