Modifications are down in the second quarter of this year, and foreclosures are on the rise, reports New York Times reporter Gretchen Morgenson in a piece entitled So Many Foreclosures, So Little Logic.
My experience in the San Francisco Bay Area is consistent with the theme that modification are few and the degree of change in the troubled mortgage is limited. Seldom is the principal reduced to reflect today’s value.
But the figure that caught my eye was this: banks who foreclosed lost an average of 65% of the loan balance! The figures come from a study by Valparaiso University professor Alan While of some 3.5 million subprime and alt-A home loans managed by Wells Fargo Bank.
You have to ask why those managing these loans think that modifying the loan will incur an unacceptable loss for the note holder. The loss could hardly be greater than 64%.
Who will hold those making these decisions accountable for the loss imposed on the note holder? And the cost to the country as a culture of home ownership is shredded is incalcuable.
Morgenson expects that ultimately the taxpayers will have to pick up the cost, but only after families have lost their homes.
I really wish that you could just provide us with a solution, rather than all these ideas of problems you have. This attitude that everybody is out to get homeowners is ludacris. The mortgage mess was not only caused by predatory lending, but by uneducated, uninformed, and sometimes irresponsible consumers, making irresponsible financial choices. I don’t understand where you get all your data and ideas from, but I work for one of the largest loan servicers in the country, and I guarantee that the attitudes and behaviors you continue to describe in your postings, are completely out of touch with reality.
The data for this post is described in the post: the study of 3.5 million loans in the Well Fargo portfolio studied by Professor White. My attitudes are born of the homeowners I meet day in and day out who experience nothing positive from loan servicers when it comes to modifications. If your employer is doing meaningful mortgage modifications, please identify the servicer.
My solution is judicially supervised mortgage modification in Chapter 13. I’m hoping that it is re introduced in Congress soon.
Your study included only loans owned and managed by Wells Fargo bank, not exactly the premier most respected of the lenders. HMP’s are the workout option that we as servicers are TOLD to offer to all customers that are above 31% DTI. Homeowners are mainly upset because they are upside down on their mortgages, especially in Northern California. This is the reason so many consumers are complaining about lenders. There is some idea in the publics mind, that the government and lenders should offer some sort of principal balance reduction, so when lenders and the HASP rolled out with it’s plan and principal reduction was not included, consumers became upset. It’s the American attitude of over indulgence borne by always having some sort of government bailout, why do you think the economy of California is in ruins? People want a bailout, and a principle reduction, but when the market corrects itself, and property values start going up, are consumers going to send a check to the lender or the government? Of course not. People have been buying new cars for years, taking out a loan, and the second they drive off of the lot, the value drops a few thousand dollars. Why is it acceptable to the public at then?
There is a possible $3500 incentive per loan modified, why would we prefer that over a costly foreclosure?
Wells Fargo is a notoriously bad lender with horrible financial issues, and a portfolio of scrath and dent loans. Furthermore, their main presence is on the West Coast where EVERYBODY is upside down on their mortgage and expect a principle reduction. People are upset because the guidelines of HASP do not allow for a principle reduction unless the lender will approve it, which they wont do because they originally loaned that amount of money. I spend my day talking to people who expect a re assesment of property value, followed by a lower payment. Northern Cal is so upside down on property values, not because of predatorial loans, but because of irresponsible consumers. Why is it the governments job or the lenders job to pick up for Northern Cals irresponsibility? It’s ludacris to even consider a principle reduction when the borrower signed the loan documents and accepted the loan. Why was the loan okay for 3 years, and has all the sudden become “predatorial?”
Nothing here suggests that necessarily these loans are predatory? Where did that idea come from?
Regardless of how we got there, my point is “what should we do when the collateral is worth less than the debt?” The property is worth whatever it is worth.
If the lender takes it back, it’s worth whatever it’s worth today. If the borrower is keeps paying, it’s still worth only what it’s worth. I have trouble telling clients they should keep paying on a debt far larger than the value of the home.
If the lender wants to stand on “principle” and foreclose rather than modify, its moral rectitude gets it devalued property and a whopping loss. Just how clever is that?
There is nothing clever about it, my point is, somebody decided to sign that note at the inflated price. It’s a consumers fault for not realizing that property values could not continue BALOONING at the rate they were, they had to reach a limit. Do you tell somebody who bought a new car to not pay the full loan amount back because the value dropped a few thousand dollars when they drove it off the lot? Of course not. Fiscally, it probably doesn’t make sense to continue paying on a house whose LTV is 250%, but morally Americans need to understand that it is a risk that you take when you buy a home, and it is the consumers responsibility to pay back the amount borrowed. Do I think that it is cut and dry, black and white? Of course not. I think lenders should meet consumers half way.
I’d also like to know what is going to happen when property values readjust. Will homeowners send checks to lenders in the mail when their home is worth MORE than they owe? I never heard lenders complaining when houses in Arizona, Nevada, Washington and California were skyrockiting and consumers along with realtors were making enormous profits. If lenders begin cutting prinicipal, when the house readjusts, should lenders expect a check in the mail for the amount the house appreciated?