Mortgage Modifications Hitting Roadblocks, As Cram-Down Bill Languishes In Senate
Mortgage Modifications Hitting Roadblocks, As Cram-Down Bill Languishes In Senate
Thanks to the efforts of Sen. Evan Bayh (D-IN), Sen. Arlen Specter (R-PA) and others, a bill allowing bankruptcy judges to cram-down mortgage payments for troubled homeowners hasn’t seen the light of day since it passed the House in early March. Majority Leader Harry Reid (D-NV) is actually thinking of pulling the cram-down provision from the legislation, since it has met such fierce resistance, fueled by a misinformation campaign based on Mortgage Bankers Association talking points.
Cram-downs were meant to go hand-in-hand with the rest of the Obama administration’s housing plan. Under the Obama plan, lenders and servicers are given incentives to modify mortgages, while the threat of a cram-down would encourage them to make modifications that actually helped homeowners stay out of bankruptcy.
According to new data released on Friday, lenders are not yet doing a bang up job on the modification front. First, the Wall Street Journal noted that Obama’s housing plan “has hit a stumbling block: a fight over how to aid borrowers who have more than one home loan”:
The Treasury Department, scrambling to address the problem, is trying to persuade lenders to forgive or greatly reduce so-called second liens. But that effort has sparked a fight between investors who own securities backed by first mortgages and banks that hold second mortgages over how losses should be shared. A failure to resolve the impasse could blunt the impact of President Barack Obama’s housing plan.
Meanwhile, in “the most detailed and broad analysis to date” of the efforts to stem foreclosures, the Office of Thrift Supervision and the Office of the Comptroller of the Currency found that “fewer than half of loan modifications made at the end of last year actually reduced borrowers’ payments by more than 10 percent“:
The report helps explain why many loans are falling back into default after being modified. Many borrowers and consumer groups contend that the modifications offered by the lending industry aren’t very generous, despite more than a year of public prodding from regulators. For instance, nearly one in four loan modifications in the fourth quarter actually resulted in increased monthly payments.
A study released last week by the Center for Community Capital found that the Obama housing plan combined with bankruptcy reform allowing cram-downs can significantly lower the rate of mortgage defaults. But instead of working to get cram-down legislation through Congress, Bayh and his merry band of agenda-less “moderates” are cutting taxes for the heirs of multi-millionaires.
26 Responses to “Mortgage Modifications Hitting Roadblocks, As Cram-Down Bill Languishes In Senate”
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Mortgage holders should incorporate. They can take advantage of the other side of the Obama financial system endless corporafornication plan.
April 4th, 2009 at 3:04 pmBetter yet, incorporate in The Channel Islands, like the Carlyle Group’s Carlyle Capital Corporation. It went bankrupt, effectively cramming down its 40 to 1 debt holders.
The lopsidedness of the financial rescue is a black comedy titled Corporafornication. This is from a “populist” branded corporatist. Sad and embarrassing.
April 4th, 2009 at 3:07 pmEvan Bayh corporate lackey. With conservative democrats in charge of health care reform, even under reconciliation, expect for-profit health care to come out a big winner.
A pox on the house of Well-a-Pointed politicians. Evan’s backers include The Carlyle Group and his family income swelled by $1.2 million, courtesy of Susan’s WellPoint board work.
April 4th, 2009 at 3:10 pmMaybe they should sell credit default swaps on individual mortgages. Then the homeowner can play the same manipulative games as the big boys.
http://www.washingtonpost.com/wp-dyn/content/article/2009/04/03/AR2009040303466.html?hpid=moreheadlines
April 4th, 2009 at 3:19 pmSO WHAT IF IT’S EASTER FOR THE SENATORS THAT
April 5th, 2009 at 1:47 amWANT THEIR POCKET’S LINED WITH BANK LOBBYIST MONEY.
PEOPLE SHOULD CALL THE STATE OFFICE WHERE THEY ARE
SPENDING THE NEXT TWO WEEKS, AND TELL THEM TO
VOTE FOR THE CRAM DOWN, AND DON’T HOLD IT UP, OR
WATER IT DOWN!!!!! HAPPY EASTER SENATOR BAYH, AND SPECTOR,
AND WE ALL KNOW WHO THE REST OF YOU ARE. HOW CAN
YOU LIVE WITH YOURSELVES.
bottom line – for us to get out of this mess, we have to have debt destruction. someone has to take a hit. homeowners have to keep lowering prices and banks have to write down principal as well. both have to take a hit or else this is going to go on forever.
April 5th, 2009 at 10:55 amAs a strapped “homeowner” (more like home borrower) and long-time former renter and frequent mover in NYC, I’m really curious why anyone thinks that people unable to pay their mortgage have more claim to the property than the lender who holds the mortgage that may exceed the property’s value. I see no credible argument for this position, though I have deep compassion for people being forced to move. Moving sucks.
Foreclosure, though seems to be the only consistent, effective and ethical approach.
The irresponsible buyer takes a hit in the form of damaged credit and the pain-in-the-neck of moving. The irresponsible lender is forced to take over the property and sell it at a steep loss, finally putting that loss on their books with a real market value.
And most important of all a new, prudent buyer who has been saving and waiting patiently for their chance to afford a home gets the opportunity to buy it. These are the people or whom congressional “compassion” is completely absent. Many responsible savers were priced out of the market in the boom. Now is their time to be rewarded for patience and prudence.
“Cram-down” forces the lender to take their much-deserved hit but also screws the potential new buyer while rewarding the irresponsible one. The current bank bailouts and taxpayer-funded low rate refinances reward the bad lenders and the bad buyers while screwing the taxpayer and the potential prudent saver.
Again, only foreclosure adheres to the contract and punishes both irresponsible parties while rewarding prudent savers and sparing the taxpayer. Learning from the pain of failure is the best regulation on earth.
“But the neighborhood takes a hit!” some like to trumpet. Well, the neighborhood enjoyed the gains from the boom, on what ethical basis should it be spared the losses of the bust? None that I can see.
Lenders that have committed fraud should be put in prison. Bad banks should be allowed to fail. And, yes, irresponsible buyers must accept their consequences too.
…but what the hell do I know?
Someone please show me where I’m wrong.
April 5th, 2009 at 4:07 pmJohn: You are disregarding the high level of unused housing stock (unused capacity in residential real estate.) I suspect this is because local governments are often biased in favor of new property developers, as opposed to converting commercial to residential or vice versa. I have no idea if conversion to and from industrial space also factors in to the equations.
In any case, first time and responsible home buyers are being offered tremendous incentives which they should take advantage of as well as they can. The huge amount of unused existing residential stock which was the reason that housing prices started to fall in the first place is the reason we should also be doing cram-downs upon bankruptcies.
April 6th, 2009 at 7:42 amSUPPORTS OF HR 1106, S.61…AT THIS TIME THE BANK INDUSTRY IS SPENDING A… HUGE AMOUNT OF MONEY (YOUR BORROWED TAX DOLLARS)IN A ALL OUT EFFORT TO ATTEMPT TO DEFEAT THIS BILL.
IN OTHER WORDS” KICK YOUR ASS “WITH YOUR BAIL OUT MONEY !
DON’T LET THEM DO IT !********************
THIS IS MORE OF A SLAP IN THE FACE TO THE AMERICAN PEOPLE THAN THE BONUS PAYOUTS !
NOW IS THE TIME ! ******************************
THEN SENATE IS ON VACATION TO 2 WEEKS….OVERWELM THEM WITH EMAILS, PHONE MESSAGES, LETTERS, CONTACT YOUR LOCAL MEDIA OUTLETS AND LET THEM KNOW WE ARE NOT GOING TO TAKE IT ANYMORE!
April 6th, 2009 at 12:15 pm“DEMAND” THE SENATE GET THIS BILL PASSED OR FACE THE ANGER AND HUMILIATION OR BEING “BOUGHT OUT” BY THE SUPPOSED BROKE MULTIBILLION DOLLARS “BAILED OUT BANKING INDUSTRY”!
@JPS,
I think your suspicion of local government collusion with the construction industry is spot on.
With regard to the incentives for new home buying… these are more of the same garbage that got us into this mess in the first place. The best incentive for new home ownership would be for the prices to continue to fall until they’ve hit a natural, market-clearing price.
What the government incentives really are aren’t “homeownership” incentives at all. They’re long-term debt incentives.
So, you’re right. The overbuilding of housing that consumers could neither afford nor truly wanted is the reason for the prices now falling. The reason for the overbuilding, though, is what we must all be focused on. The current Bush/Obama/Bernanke solutions seems to be trying to put out a fire with gasoline.
The state should kill all of these taxpayer-funded incentives. Let housing prices fall to their true market level and FINALLY allow the prudent working class that have saved and struggled to be able to really afford a home. Propping up prices is simply picking one set of irresponsible people over another set of prudent ones using all of our money to do it.
Or am I missing something? I’ve been a renter. I’ve moved a ton. I have a family. It’s not the end of the world.
April 6th, 2009 at 1:43 pmThis is a pretty interesting topic to tackle. I don’t know much about it yet, but here’s what I think based from what you’ve written. It’s not a very good plan, and I think it would be helpful if and only if modifications really help homeowners stay out of bankruptcy.
April 7th, 2009 at 4:44 amGoogle online petition S61 and sign it. Pressure
April 9th, 2009 at 9:27 amSenator’s to pass this legislation now, and stop holding
it up. We have a wave of Option Arms (millions of them)
that will start a new title wave of forclosures.
Our economy cannot take anymore!!!!!!
******* HOMEOWNERS SUPPORTING S.61 : NOW IS THE TIME !!!!*****
CONTACT YOUR SENATORS AND TELL THEM TO PASS BILL S.61 “HELPING FAMILIES SAVE THEIR HOMES”
**THE BANKING INDUSTRY IS LOBBYING HARD TO DEFEAT THIS BILL**
***SO ARE WE !!! BUT WE ARE NOT LOOKING FOR A MILTI BILLION $ BAILOUT OR
USING BORROWED TAX DOLLARS TO DEFEAT AMERICANS THAT JUST LENDED IT TO THEM !
**DON’T LET YOUR SENATE GET “BOUGHT OUT” BY THE BANK INDUSTRY!
**********************************************
CONTACTING YOUR SENATORS IS SIMPLE : “GOOGLE” MY SENATE
*** IT WILL LEAD TO THE ENTIRE UNITED STATES SENATE AND CONTACT NUMBERS FOR ALL OF THEM: EMAIL, PHONE, FAX
******************************************
**** ALSO CHECK OUT AND SIGN PETITION S.61 (IT IS GROWING IN NUMBERS BY THE HOUR) SIMPLY “GOOGLE” S.61 PETITION ****
**** YES WE CAN GET IT DONED ! CONTACT ALL AND EVERYONE YOU CAN TO GET INVOLVED. THIS IS A TRUE CAUSE THAT “WORKING TOGETHER” WE CAN MAKE IT REALITY !
April 10th, 2009 at 9:20 pmReject this bill. Allow the foreclosures to continue. Let’s stop rewarding mistakes and punishing prudence, for the love of reason and accountability!
Here’s a perfect example of the people that are being helped by foreclosure and would be (and are) punished by government intervention.
source:
http://www.npr.org/blogs/money/2009/04/excited_in_oregon.html#more
“I just wanted to say that there are some good things about the recession. I’m 26 and live in Bend, Oregon. During the real estate boom, home prices were incredibly high here. Average working class people in Bend could not afford to buy a home. My husband and I thought we would never be able to buy a house. Last month, we closed on our first home!
It is a little sad, because it was a foreclosure and a family lost their home, but were thrilled to have a home of our own to raise our 10 1/2 month little girl in! A lot of younger couples that I know have been taking advantage of the lower prices and buying. While the state of the economy is horrible, there has been a silver lining for some of us that waited to buy and still are lucky enough to have good reliable jobs.”
April 11th, 2009 at 8:11 amJohn, A Good Recession… I find it sad to see you seem so happy to throw American Families out to street for your own financial benifit ! I am glad you are not my neighbor !
*** Read the bill…. You seem to have never read the bill or going by what a “Banker” or the “Bank Lobby” told you to say !
****** I am a little confused “John”…You say that you and your “Husband” raise your 10 1/2 daughter makes me wonder if your posted comment is even real..or if you are just a Bank Lobby Rep in his DC Hotel realizing the tide is turning again in Favor of “Helping Families Save Their Homes”
I see no thrill in watching American Families lose everything they own. I know that most of these people are hard working Americans. If you lost your job (at the Bank, or Bank Lobby) and were laid off would be no better off !
April 11th, 2009 at 12:54 pmIn following the blogs and articles for the last several weeks on this issue I believe several assumptions should be brought into the light of day:
1. The apparent assumption is that every foreclosure is due to reckless borrowing on the part of the homeowner. I would argue this is blantantly unfair and inaccurate. The economic collapse we are experiencing in this country is worse than anything nearly all adults have seen in their lifetime. If predicting the depth and breath of this crisis were so easy alot fewer responsible, prudent and cautious former homeowners would still be it their homes.
2. Assumption – Foreclosures are a natural way of balancing the housing market. If you lived in Houston, Denver or Anchorage when the market collapsed in the late 80’s maybe you remember the blocks of empty houses. In the case of Anchorage, if it had not been for the billions of dollars pumped into the local economy of 250,000 people as a result of hte Exxon Valdez disaster the real estate could easily have taken 15 years to recover to the pre collapse numbers. To better understand what this means to a community, consider – schools, roads and many basic government functions depend on property taxes to operate. With limits on mil rate increases in place through most of the country, when value decreases revenue to the government decreases just as all those previously productive homeowners need government assistance. In addition, getting property tax revenue from the bank that hold the mortgage is in many cases a multi year project further straining the local government.
3. Assumption – Cramdown legislation on first mortgages will stifle consumer lending. Umm, don’t think so. This sacred cow is the ONLY type of loan where the lender is protected in a bankruptcy but the interest rates between these loans are other “unprotected” loans are not materially different. Also, second mortgages are not protected yet in many cases the second mortgage has the same or lower interest rate than the first mortgage. If banks are already loaning money at the same or lower interest rates on assets where the loan is at risk in a bankruptcy how is consumer spending going to be impacted by this change?
4. Why should the bank work with a the existing homeowner to modify the loan rather than foreclose? If a bank forecloses it takes on all the responsiblity for the property including maintenance, taxes and insurance. Banks are not set up to do this well, resulting in rapidly decreasing value of the asset. In the end banks in this market are incurring substantial carrying costs and are selling properties at 50% of the mortgage value to investors where with a little better understanding of the situation they could have reduced the mortgage with the now ex homeowner by 30%, not incurred the carrying costs and suffered a smaller loss on the loan. In addition, the community benefited from the family remainin stablized in the community. Yes, the homeowner now has a smaller mortgage than what they orginally agreed to – so they got lucky; after months laying awake at night with the fear of losing their home after already losing everything they put into it, trying to explain to children that no one did anything wrong but yes they would be moving and no they didn’t know where they would be living but promising that everything would be okay – sure they got lucky and so did the rest of us that pay taxes to help homeless families.
In the end this legislation will force banks to the table so they can make a better business decision. Will some people abuse this legislation, absolutely – will millions of families be able to stay in their homes because the playing field was leveled – yes, this is far more important than the rest of us worrying that someone got something for nothing. The banks do not operate on a “win-win” philosophy naturally. This legislation will force them to consider this approach as it will now make sense from a business standpoint.
April 14th, 2009 at 2:38 pmForeclosures up 24% this month. Carry on. Why bother with SB 61?
Thanks Senate. Talk about bought and paid for while the middle and lower classes lose their jobs, their benefits, their pensions and their homes! Soon everyone will be a useless eater with only the ballot box to voice their displeasure if they have a car that hasn’t been repossessed.
April 16th, 2009 at 7:34 am@Tom,
I’m not a huge fan of trying to make a case through personal attacks and malice, my friend. I have absolutely no connection with any bankers or lobbyists. If I lost my job tomorrow, it would be very painful for me and my family as it has been for many of my close friends that have. But I would not want the government to force my bank into making a deal.
I’ve been against every single bailout. Bear Stearns and the rest should have been allowed to fail. We are being looted by Wall st through their collusive partnership with the Fed and Treasury and the full impact of that looting hasn’t even really begun. I am someone that cares deeply about the world and the people around me. So I find your approach to my very reasonable opinion pretty unfortunate and ignorant.
I certainly am not “thrilled” to watch people’s lives disrupted by foreclosures either and made that very clear in the prior post. I feel deep empathy for the victims of this latest cheap credit boom/bust cycle. It’s a tragedy.
But my point remains. Trying to prop up prices by breaking contracts with a “cram down” punishes the working class savers who were priced out the market by the phony boom. You seem to be willfully ignoring those people, Tom. But then, they aren’t an easy electorate. The people harmed by these policies are usually the silent ones, whose opportunities are simply stillborn by the evils of inflationary government policy.
Prices need to keep falling until they find a level at which housing actually becomes truly affordable for people at a level that will clear the market. That is the most just and moral solution and it doesn’t involve state coercion or taxpayer funding. Mr. Wanamaker made an honest case for his view. I respect that approach even if I disagree with it. If you want to discuss this with some human courtesy and intellectual honesty, please try your approach again.
p.s. – that last two paragraphs were in fact a quote from the article I had linked to. I’m not sure why that was so confusing for you.
April 17th, 2009 at 12:48 amSome people call this a “bailout” for home owners, but in reality, many borrowers like myself put down 20% on their home, which is now considered totally lost due to fallen value.
For those who oppose S.61, realize that many people like me can’t even get a STANDARD refinance with Countrywide. For example, I have a 10yr interest only at 6.75% and I’m almost 3 years into this loan. I am CURRENT with my payments, and I put down 20% on my home (138K). Countrywide’s conventional 30yr fix rate loans have been at 5% for the past few weeks, and they were even down to 4.75% three weeks ago. I asked for a refi to get a rate change and to convert to a 30yr fixed. They said I am not eligible for a normal refi because my home value has fallen so much that I have no equity left in my home…..really?, who got my downpayment of 138K???
So I am stuck in an 6.75% interest only loan for I don’t know how long unless some legislation passes.
Don’t label the entire population of homeowners as irresponsible. We lost out and we are taxpayers just like the rest of you. Wake up.
April 17th, 2009 at 10:56 amTheresa,
Out of honest curiosity, why did you do an interest only loan? What was the cost/benefit you were weighing?
April 17th, 2009 at 11:23 amJohn Papola asked someone to tell him where he is wrong in arguing against adoption of SB 61. He argues that both the homeowner and the lender should suffer the loss occasioned by the mortgage default. If the default situation were limited in scope to a few hundred, a few thousand, or even a few hundre thousand, I might agree with him, because the side affects of the problem would not affect millions of other Americans personally, and the U.S. economy overall. However, where he is wrong is in trying to apply a fault theory to a problem, which is an economic problem, not a moral problem. Of course the borrower who over extended is at fault. The lender who bought high risk paper is also at fault. The market doesn’t care about that. The market only cares about how many homes are on the market at any given time notwithstanding the reasons. So by foreclosure, you kick out the homeowner, which forces the lender to re-sell the home at firesale prices. I can tell you from actual experience that the money that the lenders are getting is tens of thousands of dollars less than they would recover had they modified the loan for the homeowner. Even the big mortgage servicers like Countrywide, Litton, CitiResidential have publically acknowledged that they don’t want any more homes. The REO, i.e. Real Estate Owned by the Bank, pipeline is full. Thus, foreclosure is a lose, lose, lose proposition. The homeowner, the lender and the U.S. economy all become losers. The best approach at this point seems to be: avoid foreclosure whenever it is reasonably possible to do so. Unfortunately however, the industry has done too little, and possibly too late up until now to alleviate the situation. Loan modification is the best way to do that; however, it presently requires the consent of the current mortgage holder, who often refuses to modify, even contrary to the advice of real estate professionals. Enter cram down. With carefully tailored legislation, the decision can be shifted from the often ill informed (often foreign) investor, who is going to lose money in any event, to a bankruptcy referee or master who will review situations on a case by case basis and do it expeditiously. The result will be that the homeowner retains a place to live, investors lose less money overall, neighborhoods are stableized, etc…. Let me add this: When Cram-down was first proposed back in the ’80s, I was 100% against it. It was a terrible idea for which there was no need whatsover. Now, I see it as the only real option that we, as a nation have in order to prevent a total meltdown of real estate, and with it the entire American economy which rests so heavily on it.
April 17th, 2009 at 2:32 pmI. Prince,
I think you’ve misinterpreted my comments. I’m not applying moralism or some fault theorem. What I’m applying is a strong believe in the rule of law and contracts.
Where the moralism comes into play is in the motivation for coercively breaking the contracts for certain people. I’m merely pointing out that this kind of action is harming potentially just as many people. Prices went into the stratosphere during this Federal Reserve-created cheap credit boom. They MUST fall back to a real market price if we are to have any true stabilization in our economy that’s not built on inflationary monetary policy. This is all part of a bigger problem.
If the mortgage holders don’t want any more homes and would clearly be better off renegotiating the principle on these mortgages, as you are claiming, why is “cramdown” necessary at all? That’s an honest question. I would think that those with the financial incentive to minimize their own losses would see the benefit versus the alternative.
Your concerns about the an economic catastrophe aren’t grounded in history. Propping up prices is what reduces prosperity in the overall economy by stripping people of their purchasing power. If a voluntary modification won’t be done, let the bank take back the house and sell it at a firesale price. The buyer of that property will be the beneficiary of that proper liquidation and their additional savings will flow into the economy.
Again, I truly feel for the people losing their homes. I could easily be one of those people given my own debt and costs and the fact that my mortage is near 100% of the value of my home at this point. But there’s nothing wrong with renting, building back up your savings and learning from the experience. In fact, it’s the only way to restore things. Nevermind that cramdown will produce all kinds of strange consequences such as people intentionally cutting back their work hours in order to qualify for the income-to-mortage ratio and other scams. Then, of course, there’s the fact that lenders will inevitably price in the potential of future cramdowns, further raising costs for new buyers.
Listen, this is an insane situation brought about by massive inflation through the Fed that was funneled into housing by government social engineering. There are many innocent victims but also many many people that put themselves in untenable positions with purchases that they could barely afford and too little savings to weather a storm. Coercive breaking of contracts by the government is simply unacceptable as a solution. The madness has to stop.
April 17th, 2009 at 11:50 pmPOSSIBLY.. MAYBE .FINALLY.. A RAY OF HOPE. THE WORD IS SLOWLY COMING OUT THAT A DEAL MAY BE IN THE MAKING THAT COULD BE BE READY FOR VOTE ON “HELPING FAMILIES SAVE THEIR HOMES” AS EARLY AS TUEDAY APRIL 21ST, 2009 BY THE SENATE. IT SEEMS TO BE TRUE FROM THE VARIOUS RESPECTED NEWS AGENCY’S THAT ARE REPORTING ON S.61 AND HR 1106.
**********
IT APPPEARS RESTRICTING AND NARROWING LIMITATIONS ARE BEING ADDED TO THE BILL. BUT IT STILL SEEMS TO BE ABLE TO GET THE JOB DONE FOR MOST OF THE PEOPLE WHO NEED THE HELP AND SUPPORTED THE BILL FROM THE BEGINNING.
**************
THE ONE PROBLEM IN GETTING THIS BILL PASSED IS THAT IT NEEDS SOME REPUBLICAN SENATORS TO VOTE IN “FAVOR.”
*** 10 STATES ARE KNOWN TO HAVE THE WORST FORECLOSURE RATES. MANY REPUBLICAN SENAT0RS REPRESENT IN EITHER 1 OR BOTH SENATE SEATS.. THESE ARE THE STATES THAT ARE UNDER EXTREME PRESSURE TO HAVE THEIR SENATORS REPRESENT THEM AND DO SOMETHING ABOUT THIS FORECLOSURE CRISIS. NEVADA, ARIZONA, TEXAS, GEORGIA, FLORIDA, INDIANA, PENN, INDIANA.
**************
THIS IS NOT A REPUBLICAN VS.. DEMOCRAT ISSUE. THIS IS AN AMERICAN CRISIS. FORECLOSURES ARE NOT DEFINED AS DEMOCRAT OR REPUBLICAN. !
**** LET THESE SENATORS KNOW TO SUPPORT S.61 AND THEY WILL BE MORE “RESPECTED FOR HELPING AMERICANS”. THE BILL IS NOT A MONETARY BAILOUT.. SO THAT TAKES ALOT OF PRESSURE OFF. AND IF A GROUP WORKS TOGETHER IT WILL NOT BE LOOKED AT IN A NEGATIVE WAY WHATSOEVER. IF ANYTHING, IT WOULD BE NICE FOR ONCE TO SEE REPUBLICANS AND DEMOCRATS WORK TOGETHER TO HELP AMERICANS AND GET THIS ECONOMY BACK ON THE RIGHT TRACK !
April 18th, 2009 at 11:56 pmJohn Papola: You said
An excellent question, and one that we, who work in this businss often ask. There is a lot of loan modification going on, but it isn’t nearly enough and the mods don’t go far enough in many cases. Nobody knows what drives the failure of the mortgage holders to act sensibly, i.e. in their own best interest. Some say it’s because the loans are so fragmented and “derivitised” that the real owners aren’t known. Or that they are waiting and hoping for bailout money to AIG or whoever to come along and save them from loss. In truth, nobody knows for sure why the right decisions aren’t being made at the investor level. S.61 is the tool (actually a lever) that the industry needs. With a rememdy like S.61 available, the process of negotiated loan modifications will litereally take off, and hopefully solve many problems.
Other points that you raise John, like abusive filings by people deliberately lowering their incomes to qualify sound like talk radio myths to me. And while a real estate crash will permit some people to bargain shop for homes, what about people who simply need to sell their home in order to retire, or relocate and now can’t find buyers paying anthing close to what their home should be worth. What about the neighborhoods full of empty, rapidly deteriorating homes, probably like the ones you and I live in. What did those citizens do wrong? What we need is a controlled restructuring of prices, not a crash, which is what we’re headed for now, without government/legislative action. Believe me, about the crash without supports, and I’m not even sure that will stop it, because other factors like unemployment could come into play and make S.61, which requires that people have decent jobs, a moot question.
April 19th, 2009 at 12:50 pm– I. Prince, you said:
“There is a lot of loan modification going on, but it isn’t nearly enough and the mods don’t go far enough in many cases.”
I agree with most of your statements and I believe we have a similar view on this situation.
I’m certain the modifications aren’t going far enough – if fact, in many cases, it’s probably adding to the loan by stretching it out, and putting “forgiven” principal toward the end of the loan.
My question is, where are all these modifications happening? Is anyone aware of any successful Countrywide mods with people underwater? The friends I’ve confided in have suggested I stop paying my mortgage just to get their attention. I have no desire to become a statistic. I’m angry because I can’t get into a 30 fixed at a decent rate now.
– John Papola, you said:
“Out of honest curiosity, why did you do an interest only loan? What was the cost/benefit you were weighing?”
My husband and I moved from NJ to CA (we sold a home in NJ). My job was a relocation. My husband’s job was not, but he has business connections out here in CA and had been working with several companies in CA while we lived in NJ for over a decade. Because my husband’s job was not already a done deal, Countrywide only put my name on the loan. With my salary, a 10yr interest only was the most logical loan we could get at the time (at least if I wanted to live in a safe neighborhood close enough to my job and not pay rent). Of course, our mortgage writer said we would have no problem changing the loan as soon as my husband had a steady income in CA…..BS!
April 21st, 2009 at 4:13 amMy understanding of the definition of “Cram-down” is that a person needs to file Chapter 13 bankruptcy and then a bankruptcy judge can lower the principal balance on a mortgage….of course, I understand that Chapter 13 hurts a credit rating, but some of you seem to be discussing Cram-down as if it’s a separate process from a bankruptcy. (?)
Wow, if the mortgage companies would offer to lower mortgage principal balances to logical true home values without a borrower’s bankruptcy, a lot less people would file Chapter 13 if this bill passes.
I wonder how many credit ratings are going to come out of this unscathed.
April 21st, 2009 at 4:30 am