Government-backed liar loans

[Milton Kuo]

Re: Government-backed liar loans

So I agree everyone is making assumptions but based on the history of banks I'm still pretty confident this is a profit making deal for the bank in some way shape or form, regardless of the potential risk they're taking on.

I've dug into this a little bit more and it looks like Fifth Third is making money by doing the refinancing paperwork. They are acting as a middleman for Fannie Mae and Freddie Mac as far as I can tell. From the Making Home Affordable web site:

The Home Affordable Refinance Program gives up to 4 to 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. The Home Affordable Modification Program commits $75 billion to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures.

So.... If these loans are already owned or guaranteed by the GSEs, this is a way for the U.S. government to buy time and pray that housing prices rise enough to make bad paper good. In the meantime, the banks get to make some easy money (1%, perhaps?) processing the paperwork.

[we_are_toast]

Re: Government-backed liar loans

Today, I placed a call to the number in the letter and asked a few straightforward questions with regard to the letter. First, I found out this is for their customers only - you already must have mortgage with them. The main intent seems to be for helping homeowners keep their home: if they have a high interest rate, then they could be able to get a lower interest rate using this process.

There was also a lack of complete clarity for me about the 125%. Seems like it is 105% on a first and 125% on a combiined first and second.

On the surface this seems to be "here we go again" and yet with a little investigation it seems to me to be someone's attempt to actually do something for homeowners in trouble. If I owned home with a 7.5% mortgage with a $200,000 balance that was worth $190,000 and I could use this process to take out my $200,000 mortgage with a new $200,000 loan at 5% then I think that makes sense for everyone except 5th Third in this case - Therefore I suspect this program might be part of a process to get Fifth Third (and mortgagees) on board doing what we have all complained that noboody is doing and that is helping some of the people keep their homes. BTW I know it is 42 Billion ways this could be abused theoretically.

Furthermore, I suggest someone from itulip call them and get an update on the parameters of this type of transaction and publish it here.


Cindy

Thanks for doing some research into this. Often times things are not as they seem.

This sure looks like a way to make todays lower interest rates available to people who would be stuck with those higher rates without some government help. Lowering monthly payments will certainly prevent some homes from going into foreclosure. You may disagree with the policy and approach, but to claim this is going back to the days of liar loans is more than a stretch.

[cindykimlisa]

Re: Government-backed liar loans

On the other hand Cindy, you're making positive assumptions on behalf of 5th 3rd that they've PROBABLY done a credit and employment verification already. It doesn't say that anywhere here or on their website.

So I agree everyone is making assumptions but based on the history of banks I'm still pretty confident this is a profit making deal for the bank in some way shape or form, regardless of the potential risk they're taking on.

And I don't need to call them because I'm really not that interested in getting more details. Fred's point still rings true to me though:

"No more Fed buying blown up asset-backed securities that backed bogus sub-prime mortgages to rescue banks that should be allowed to fail.

Wait. What?"

I would have felt much better about this marketing ploy had they said you can refi subject to your credit and employment history being acceptable. Only those without acceptable credit or employment verification would quibble with that and that would demonstrate to me a bank showing more diligence.

Agreed the letter does not say anything about the credit check or employment verification: But you assumed I made a statement that they did those things and if you read my posts you will find I did not say those things and did not assume they did. I Called them Remember!!!!!!!!!!!!!!! I was only responding to Milton on those issues and advising him that they would be very easy things to do on an existing customer.

No Question in my mind Fifth Third is going to make some profit on this and my guess is that the guy who wrote the letter is going to get a bonus of ten times what I made last year from this.

Cindy

[cindykimlisa]

Re: Government-backed liar loans

Thanks for doing some research into this. Often times things are not as they seem.

This sure looks like a way to make todays lower interest rates available to people who would be stuck with those higher rates without some government help. Lowering monthly payments will certainly prevent some homes from going into foreclosure. You may disagree with the policy and approach, but to claim this is going back to the days of liar loans is more than a stretch.

Thank You

Cindy

[metalman]

Re: Government-backed liar loans

Agreed the letter does not say anything about the credit check or employment verification: But you assumed I made a statement that they did those things and if you read my posts you will find I did not say those things and did not assume they did. I Called them Remember!!!!!!!!!!!!!!! I was only responding to Milton on those issues and advising him that they would be very easy things to do on an existing customer.

No Question in my mind Fifth Third is going to make some profit on this and my guess is that the guy who wrote the letter is going to get a bonus of ten times what I made last year from this.

Cindy

you guys are knocking yourselves out trying to justify the practice of selling a loan without income verification or credit checks. this practice got the banks into trouble. who cares who the letter was sent to? why offer 'no income, employment or asset verification' to anyone?

bad, bad bad. period.

this letter is a wtf, pure & simple.

[lsa420]

Re: Government-backed liar loans

That's from EJ's uncle Herbert Janszen who was a doctor in Austin. We scanned it and plan to use is in the new iTulip site we're working on in the section on debt, the other opiate.

Don't forget religion!:eek:

[we_are_toast]

Re: Government-backed liar loans

you guys are knocking yourselves out trying to justify the practice of selling a loan without income verification or credit checks. this practice got the banks into trouble. who cares who the letter was sent to? why offer 'no income, employment or asset verification' to anyone?

bad, bad bad. period.

this letter is a wtf, pure & simple.

Sorry MM, but it's neither pure nor simple.

This is about refinancing, not new loans. It doesn't contribute to growing a bubble, it tries to gently deflate a bubble without it exploding. These people already have the house and the loan. If they have an ARM about to reset, they had 2 choices, give up eating and hope they can make the higher payment, or default. Now they have a 3rd choice, a lower payment that might keep them in their home. It will also give some families more disposal income which will help create some much needed demand in the economy.

Just as I don't believe we should try to end deficits tomorrow, we can't simply let the housing bubble collapse.

[Slimprofits]

Re: Government-backed liar loans

On the other hand Cindy, you're making positive assumptions on behalf of 5th 3rd that they've PROBABLY done a credit and employment verification already. It doesn't say that anywhere here or on their website.

In the fine print of the letter it is stated: This is not a pre-approval or a commitment to lend. Subject to credit review and approval.

I am not missing the point at all. Read the letter carefully - it says they have already done an "initial review" - This is to an existing customer - what did they review before they sent this to their customer?

It seems obvious that in fact nothing was reviewed accept for the addressee's status as a customer of the bank.

[bill]

Re: Government-backed liar loans

Government-backed liar loans

At least one good thing came out of the housing fiasco. We’ll never have to clean up after another mess made by mortgage brokers selling liar loans to borrowers who can’t afford to repay.

No more exploitation of the dreams of new entrants to the middle class, built on the fantasy that they can afford a home that sports a price that has been inflated by decades of government loan subsidies.

No more Fed buying blown up asset-backed securities that backed bogus sub-prime mortgages to rescue banks that should be allowed to fail.

That’s all behind us. We learned our lesson! The government will prohibit these kinds of loans, prosecute violators, and never allow this mistake to happen, again.

Wait. What?

Under new The Making Homes Affordable Again to People Who Can’t Afford Them program the government is now not only allowing liar loans, it’s backing them with your tax dollars.

Pile on debt and legally collect.

http://money.cnn.com/2010/02/03/real...ment/index.htm

By Les Christie, staff writerFebruary 3, 2010: 3:21 PM ET




NEW YORK (CNNMoney.com) -- As terrible as it is to lose your house to foreclosure, at least it's a relief to put your biggest financial headache behind you, right?
Wrong.
Former homeowners may still be on the hook if there's a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these "deficiency judgments" are ticking time bombs that can explode years after borrowers lose their homes.
It can even happen to people who got their bank to approve them selling their home for less than it is worth.
Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.
"My understanding was that the deficiency was negotiated away," she said. "Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it."
Where the foreclosure plague is spreading
Many homeowners are now in the same boat. And not just those who took out bigger loans than they could afford or who did so called "liar loans" where they didn't have to verify their income.
Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances -- like unemployment or a job transfer -- can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments.
"After the banks foreclose, it's very common now to have large deficiencies with houses not worth the balances owed," said Don Lampe, a North Carolina real estate attorney.
Lenders mostly declined comment. Although Corey's lender, BB&T did indicate it was pursuing more deficiency judgments.
"They follow the rise and fall of foreclosures," said the spokeswoman, who would not discuss Corey's account.
Can they come after you?
Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there's a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them.
"Once they have a judgment, they can pursue you anywhere," said Richard Zaretsky, a board-certified real estate attorney in West Palm Beach, Fla. "They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail."
In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms.
Some states, such as California, are "non-recourse" and don't allow deficiency judgments. But, even there, if the original loan was refinanced, some or all of it may be subject to claims.
Check the foreclosure rate in your state
Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank.
But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation.
"People shouldn't have a false sense of security that a deficiency judgment may not be later sought," Zaretsky said.
He expects many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount.
"The parties who bought those notes wouldn't have paid money for them unless they had the intention of acting," Zaretsky said.
Ticking time bomb
What can be scary is that the judgments don't have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest.
It doesn't have to be a large amount of debt for a lender or collection agency to come after borrowers. Richard Varno and his wife short sold their Nashville home back in 2004 after he lost his job.
It wasn't until 2008, when the second lien holder asked him for $25,000, that he realized he still was liable.
"I told them, 'Hey, you guys released the title,'" he said. "As far as I know, I'm off the hook."
He wasn't. Releasing title does not necessarily end the debt. It's complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the loan.
Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale.
Zaretsky had one client who was so relieved to have arranged a short sale that he signed every paper his real estate agent shoved at him, even a confession that clearly stated he still owed the debt.
"He had no idea what he was doing," said Zaretsky. "All the lender had to do was go to court to convert the confession into a deficiency judgment."
Lenders are also very inconsistent. One of Zaretsky's short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender always reserves the right to pursue the deficiency.
Strategic defaults
Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky.
"Banks are pulling credit reports to see if it's a strategic default," he said. "If you're behind on all your other payments, you're okay. But if you're not, they'll come after you."
If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu.
"We don't favor any short-sale contracts that leave any deficiency that can be pursued," he said.
Robinson himself knows what can happen. He paid off a deficiency after his own New Jersey house went through foreclosure 11 years ago.

[ljaycox]

Re: Government-backed liar loans

Sorry Milton, You're doing the same things as Fred in your opening paragraph when you say " looks to be boilerplate." You are making some big assumptions that may not be true. What is boilerplate? Also, Have you heard on itullip and elsewhere that Banks are not making loans because they have severly tightened up their underwriting so that is just the opposite of what you are assuming - Believe me and many others - banks are a lot more diligent now, You missed the point.

Your third paragraph is full of your own presuppositions which are in fact incorrect as they do not relate to everyone. Not everyone as you have spelled out is a credit risk.

A real estate tax assessment doe not provide employment data. But a credit report may or a call to the employmment office will.

I think your post is the best example of why someone from itulip needs to call these folks and find out the real deal and report it here. If you take a step back and read your post you will see how many negative assumptions you have made - assuming (ideally - your ideal) that this is about something negative the bankers are doing. You are buying in to Fred's herd mentality. I am not. I made a call for myself and found a few things different than what I may have assumed to be true by reading only this post and making assumptions. I suggest you do the same.

This plan might actually do some good for some borrowers.


Cindy

This program is about helping the BANK convert a mortgage that was originated under circumstances that kept it out of the federally backed mortgage pool (much of the securitzed shit was non-conforming) and passing it through the magic shit converter and turning it into an obligation of the US government (that would be you in this instance Miss Taxpayer.)
After the refi, when the loan inevitably defauts--you will have the distinct pleasure of making the bank whole out of your earnings--enjoy this "help for "homemoaners"".

[metalman]

Re: Government-backed liar loans

Sorry MM, but it's neither pure nor simple.

This is about refinancing, not new loans. It doesn't contribute to growing a bubble, it tries to gently deflate a bubble without it exploding. These people already have the house and the loan. If they have an ARM about to reset, they had 2 choices, give up eating and hope they can make the higher payment, or default. Now they have a 3rd choice, a lower payment that might keep them in their home. It will also give some families more disposal income which will help create some much needed demand in the economy.

see this?

Just as I don't believe we should try to end deficits tomorrow, we can't simply let the housing bubble collapse.

nope... the sooner home prices (loan collateral) are allowed to fall, the sooner mortgages default & are refied to lower home (loan collateral) prices, the sooner homeowners will have $$$ to spend on goods & services, the sooner the economy will recover.

[cindykimlisa]

Re: Government-backed liar loans

you guys are knocking yourselves out trying to justify the practice of selling a loan without income verification or credit checks. this practice got the banks into trouble. who cares who the letter was sent to? why offer 'no income, employment or asset verification' to anyone?

bad, bad bad. period.

this letter is a wtf, pure & simple.

Thank you metalman for your very much to the point comment. Of course it is only your point as usual and in this case an uninformed point.

Cindy

[cindykimlisa]

Re: Government-backed liar loans

see this?



nope... the sooner home prices (loan collateral) are allowed to fall, the sooner mortgages default & are refied to lower home (loan collateral) prices, the sooner homeowners will have $$$ to spend on goods & services, the sooner the economy will recover.

How naive!

Cindy

[cindykimlisa]

Re: Government-backed liar loans

This program is about helping the BANK convert a mortgage that was originated under circumstances that kept it out of the federally backed mortgage pool (much of the securitzed shit was non-conforming) and passing it through the magic shit converter and turning it into an obligation of the US government (that would be you in this instance Miss Taxpayer.)
After the refi, when the loan inevitably defauts--you will have the distinct pleasure of making the bank whole out of your earnings--enjoy this "help for "homemoaners"".

Perhaps you could provide some evidence to what you are saying.

Cindy

[metalman]

Re: Government-backed liar loans

How naive!

Cindy

inflate wages, deflate goods, deflate housing more... cut housing expense... boost economy. that's how most countries do it. the usa has the highest personal spend on housing of any nation... except germany.