mortgage modifications

Occupying Homes As A Solution?

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Seriously..I am torn.  I just don’t believe this is the right way to deal with a lender when you can’t make your previously AGREED TO payments.

I recently became aware of the website OccupyOurHomes.org.  The site is full of heart tugging stories of people who can’t make their mortgage payments and the issues they have had with the banks in attempting to get a modification or stop an eviction.

I have to start with a basic idea here.  All of these people signed mortgage contracts under lawful circumstances.  If it could be ruled they were not of a right mind, or capable of understanding what they executed, then by now the attorneys would be attempting to void out mortgages based on the incompetence of the borrowers.  Not heard that case being made.

As I wander through this site, I see that the one thread that ties all of these people together is that they can’t make the payments they agreed to make, and getting to live in their homes at a lower cost (or even no cost) is a right extended to them by living in America.  Or under God..or some other deity.   The theme, as we now have heard it from the media so many times, is the 99% will have their voices heard.

The reasons I am torn?  A bunch really.

1. I do feel bad for people who are able to enter agreements (contracts) and really not understand the possible repercussions.  On a different scale..I assume most of these folks purchased cars on credit and signed notes for the cars.  If they can’t make the payments, the car gets repossessed.  No modification programs are being advocated by the government for car buyers.  I have heard talk of them for student loan borrowers.  I suppose cars are next..and I guess OccupyOurCars.org has already been acquired.

2. Admitadely, the banks have not shown a lot of excitement to provide modifications.  They have done it under the strong arm-twisting of the federal government..but the reality is they are complicated beasts with a VERY high rate of failure.  As I have witnessed so many times, the people who are unable to make their house payment also often choose to not spend money on maintenance.  The longer the situation exists, the more the value of the home drops (as do the ones around it).  Modifications, due to the high rate of failure, don’t stop this cycle..only prolong it.

3.  As I review the website, it appears there is a lot of good money being spent on this cause.  It in fact troubles me as to where the funds are coming from.  Yesterday, a press release found on AOL Real Estate brought me to my tipping point on this issue:

NEW YORK – Aug. 22, 2012 – The “Occupy Our Homes” movement is taking its anti-foreclosure message to the airwaves. The protesting group, part of the Occupy Wall Street movement that has a network of participants across the country, announced it has launched a national television ad campaign to speak out against foreclosures and show struggling homeowners how they can fight against evictions.

In recent months, the group has staged “sit-in” protests at properties of homeowners facing foreclosure.

The TV ads direct viewers to the OccupyOurHomes.org (Link: http://occupyourhomes.org) website for a field manual on how to “start an occupation,” which details how homeowners can protest a foreclosure using sit-in strategies.

The ads are set to appear on networks like CNN, FOX and MSNBC.

This is not inexpensive advertising!

The great thing about America and our system is there is plenty of room for groups like this to exist.  We do have laws and at some point those laws will need to be enforced.  There are thousands and thousands of people involved in the housing business who have all kinds of empathy for people who made bad decisions.  Nobody really wants people to be put out on the street.  Don’t worry..they won’t be.  There are so many options for renting and public assistance today.  What I have on my mind is who is funding this anti-capitalism, anti-law, protest movement?  And why?

That is what we all should start to be concerned about.   If you have information on this please comment and share so we can all draw our own conclusions.

Not Surprising To Me

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For almost three years I have said the economy is not getting better until we let the market work the housing mess out.   For three years,  policies have worked in a different, opposite fashion.  I quietly continue in this belief..but today found some evidence that adds fuel to my fire.  I just had to share it.

There now is evidence that the more interference in the default process, the more that we just keep working toward a much longer crisis.  Similar to how tax incentives or new taxes artificially create behaviors in the public that would not have been taken if not for taxes, evidence now points to availability of mortgage modification offers creating strategic defaulters who otherwise would have had the ability to pay their mortgage!  I know for many this news will not come as much of a surprise but it is unusual to see research like this made available for discussion.   In other words, Tom and Betty are not happy that their mortgage is more than their home is valued, but they have good jobs and can make timely payments.  Yet, when their lender publicizes modification programs that reduce payments, interest rates and even principal reductions, Tom and Betty decide to fall behind on their mortgage in order to take advantage of the opportunity.  Now I understand this does not happen every day..but it supports a point.

Another quick example.  It has become widely known that most areas now can take a year or more before a foreclosure will occur from the time the first payment is missed.  Owners often no longer move knowing this long backlog exists and their cost of shelter is so small.  Owners or occupants are also keenly aware that not moving will likely result in further profiting.  Used to be when a foreclosure was completed (meaning the defaulted owner no longer owned the home), the new owner gave an occupant 15 days to leave.  Now,  negotiations that allow occupants to stay for 30-60 days and get a check for $2000 to $3000 for leaving the property in good condition are the norm.  So, you get the idea…why leave?  wait for your deal.  And that is what is occurring.

Any more questions why the housing market is not recovering?

Why Loan Modifications Will Not Fix Housing

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bank_img.jpgBeyond my concerns regarding the huge sums of money being invested in the extension of the housing purchase credit ($8 billion more!) we now are told that the administration plans to embarrass the servicers who are not modifying mortgages,  The problem with why servicers are not modifying loans is not that they do not want to!  The problem is not that they are evil people that would rather take a home back in foreclosure.  The problem is not that they love having huge REO inventories to service (and lose lots of money on).  I hate to say this because it is so not-PC..but the problem is the borrowers who need to apply for these modifications.

Lets go through the reasons that the administrations heavy handed approach is still not going to make the huge difference in the housing situation.

I have seen it published (and speculated )that home owners who have lost jobs, died or divorced account for 50 percent of the defaults. In my 15 years of experience in this industry that seems to be the number I have experienced and I would expect that 50% of defaults will always be rooted in these life changing events that nobody plans for.  You just can’t modify loans in these cases to a point that makes a difference-even if the borrower wants to stay in the home-which most don’t.

Another 25 percenta are a result of resets of adjustable-rate mortgages that borrowers can no longer afford on loans that are underwater.  I have had this conversation with so many borrowers.  They have huge negative equity and no matter how they cut it they do not see the logic in continuing to make payments that will take 15 years or more to just right the ship (so that the loan balance and value of the home are equal).

So, this leaves 25% of the defaulting borrowers interested and possibly able to qualify for a modification.  The issue with these folks are that,. as the servicers are discovering, they often are not willing to comply with all of the requirements needed to even complete the application process.  Apparently, the modification process is like applying for a new mortgage and usually, I suspect, these folks have some skeletons that they figure will kill the deal so why waste the time?  This is my guess..I am drawing a conclusion based on a lot of reading on this issue.

Options?  A better one would of been to have established a program for anybody (even people current on their mortgages) where they could have enjoyed a government subsidized mortgage rate of 2% fixed.  I think the 25% of people above would have been helped by the lower rate…assuming they would not have ended up in foreclosure anyway.  The big boost is to all of the rest of us with mortgages who would gain a few hundred extra bucks per month in savings.  I can say with some certainty that this type of plan would of offered a much longer term boost to the economy and cost less than the buyer credit and the $75 billion for modifications.  I also proposed this idea long before these other actions.  I am not a fan of government stimulus, but I do think if we are going to have the government take action, there needs to be more done to help the people who can take the government benefits and multiply them throughout the economy.  Unfortunately, there is no multiplier to modifications. 

Now you also know why I think it is a shame that the government is going to waste a lot of energy strong arming the servicers into modifications that take two to tango…