Appalling discovery about US housing policy

[grapejelly]

I run various websites for people in foreclosure and whatnot.

Until just a month ago, it was lender policy not to grant a homeowner a modified loan unless the homeowner met certain criteria...

Most loan mods fail. In that the homeowner fails to make the new payment also. So lenders were not eager to modify a loan and go through the expense and time, and have the borrower reneg.

Well, as of about 3 weeks ago, this has all changed. Lenders are eager to modify any loan regardless of the probability that the homeowner will meet the new obligation.

Most of the old loan mods failed. What chance do the new ones have, in this new "anything goes" climate?

The US is dictating lender policy outright. The investors in these loans be damned.

And this is appalling because it is designed to freeze homeowners in their homes at any price. Just so long as they don't walk away, let their houses be foreclosed, or do a short sale.

It is precisely the wrong thing because it will prolong the US housing crisis for more years.

[sunskyfan]

Re: appalling discovery about US housing policy

I happened to talk to a loan guy yesterday. He said his failure rate has only been .1% on all the loans he has written the past few years. He also to told me that he never got into the "subprime" stuff. He then told me that he is still writing loans where the borrower has issues but he was pushing them through and it will be all "ok".

What do people think we are "bailing out" besides a corrupted system that will continue to do business as it always has? What correction has taken place? It is like we trimmed a few leaves off the weeds and threw and ton of fertilized on it and now expect our garden to grow.

[merry]

Re: Appalling discovery about US housing policy

Lenders are eager to modify any loan regardless of the probability that the homeowner will meet the new obligation.

Do you happen to know if the new loans are recourse or non-recourse loans?

[grapejelly]

Re: Appalling discovery about US housing policy

Do you happen to know if the new loans are recourse or non-recourse loans?

recourse loans

[lurker]

Re: Appalling discovery about US housing policy

recourse loans

Were the original loans non-recourse ? If so then that alone explains the banks' "generosity".

The banks clearly intend to put vacuums in the pockets of the populace and suck until all that comes out is lint.

[grizam303]

Re: Appalling discovery about US housing policy

When I tried to get a loan modification around February, I was pre-approved based on my financials, then the package was sent to the investors to get final approval. I was denied on the basis of I don't make enough.

I didn't know what to say to that...

[grapejelly]

Re: Appalling discovery about US housing policy

this policy was recently changed, like in the last 3 weeks. I think it is connected with the US takeover of the banking system...

Things changed UTTERLY in the last 3 weeks

[hoodoo]

Re: Appalling discovery about US housing policy

Yep - something certainly gave the banks a hard push.

http://www.bloomberg.com/apps/news?p...83s6s&refer=us

this policy was recently changed, like in the last 3 weeks. I think it is connected with the US takeover of the banking system...

Things changed UTTERLY in the last 3 weeks

[grizam303]

Re: Appalling discovery about US housing policy

this policy was recently changed, like in the last 3 weeks. I think it is connected with the US takeover of the banking system...

Things changed UTTERLY in the last 3 weeks

Oh yeah, I bet. My example was of the sentiment before the wreck. I'm supposed to get a review next month, and I have no idea what to expect.

I just don't understand what these banks have been thinking (though that may have changed) with their all-or-nothing mentality. If you can't make the exploding interest payments, we'd rather have your house which is worth 75 cents on the dollar of the original note? How is that good business?

I feel like a kid waking up for saturday morning cartoons lately, because one of the first things I'll do is check the news to see if any other firm has failed. There were a couple of good episodes a few weeks back, but I have a feeling that the new episodes are still being recorded, they're just waiting for the presidential election to be over.

[grizam303]

Re: Appalling discovery about US housing policy

Yep - something certainly gave the banks a hard push.

http://www.bloomberg.com/apps/news?p...83s6s&refer=us

So either someone figured out that getting some money is better than no money...

or

They're tired of getting foreclosure properties with the windows broken out, the walls smashed in, and concrete poured down the plumbing. Not like they had a market value to begin with...

[grapejelly]

Re: Appalling discovery about US housing policy

really, good business would be to mod people's loans who have a chance of making the payments, and short selling those who don't. Principal reductions could be done in bankruptcy court or not at all. Principal reductions represent an enormous moral hazard and 30% of homeowners would be lining up. Even Bernanke doesn't fly a helicoptor that big!

So this is a huge problem. And US policy is to just keep a lid on it and hope it all works out. Which prolongs the problem and will make it last years longer.

[bpr]

Re: Appalling discovery about US housing policy

Principal reductions represent an enormous moral hazard and 30% of homeowners would be lining up. Even Bernanke doesn't fly a helicoptor that big!

You're right, but we're way beyond moral hazard at this point. The Treasury is now funding mergers and bonuses.

IMHO, principal reduction is the quickest "solution" to this problem. One in five mortgages is underwater right now; if they fall into foreclosure (which makes sound economic sense from a homeowner's perspective) it's a 100% loss of equity, considering the drop in property values in surrounding homes. Lowering the principal on underwater mortgages would be a quick jolt, especially to the already-maligned housing sector, but I believe it would hurt less in the long run than the lengthy and protracted alternatives.

[D-Mack]

Re: Appalling discovery about US housing policy

You're right, but we're way beyond moral hazard at this point. The Treasury is now funding mergers and bonuses.

IMHO, principal reduction is the quickest "solution" to this problem. One in five mortgages is underwater right now; if they fall into foreclosure (which makes sound economic sense from a homeowner's perspective) it's a 100% loss of equity, considering the drop in property values in surrounding homes. Lowering the principal on underwater mortgages would be a quick jolt, especially to the already-maligned housing sector, but I believe it would hurt less in the long run than the lengthy and protracted alternatives.

JPM is going to help ....

JP Morgan to help struggling borrowers

Robin Sidel | November 01, 2008

JP Morgan has launched an ambitious plan to modify the terms of $US70 billion in mortgages for borrowers who are behind on their payments or soon could be.

The move by the New York bank will cover as many as 400,000 borrowers. They'll be moved into loans carrying lower interest rates, smaller principal amounts and other more-affordable terms.

http://www.theaustralian.news.com.au...-20501,00.html

[c1ue]

Re: Appalling discovery about US housing policy

So either someone figured out that getting some money is better than no money...

or

They're tired of getting foreclosure properties with the windows broken out, the walls smashed in, and concrete poured down the plumbing. Not like they had a market value to begin with...

Or, with the passage of the bailout, bank balance sheets are now officially meaningless and the brass knuckle effect that foreclosures and subsequent loss sales have on said balance sheets is no longer something to be postponed.

[audrey_girl]

Re: Appalling discovery about US housing policy

if you have the time (about 10 minutes) take a look at this news report, "Foreclosure alley" - very disturbing report about what is happening at ground zero here in California - doesn't sugar coat this thing at all:

http://www.kcet.org/socal/2008/09/fo...ure-alley.html


i don't get why the banks don't deal at this point in time. I read a Gary North article about 6 mos ago where he said they don't deal b/c the mortgages are so packaged, consolidated, and distributed around the planet that there is no easy way to get the two parties (mortgagor and mortgagee) together to negotiate. maybe that is why