are in default for the second time.

Reasons.....need I say....modifications weren't adequately beneficial, job losses, credit card debt, bankruptcy filings.....

The housing legislation bill signed in Aug was supposed to help 400K homeowners. It was enacted in Oct. It has helped a tad over 2K.

$350 BILLION could have helped everyone.....$700 Billion could have put lots of extra jingle jangle in our pockets.

Is YOUR bank lending you money? Somehow they can't find the $300 Billion now.

So do not feel badly if your facing a loan modification default......they were smoke and mirrors anyway.

savemanatees

exactly those mods theyve been doing this year are a joke. those banks are only helping themselves into oblivion

Some of the modifications are just the banks standard "workout" plans in disguise where they add missed payments and fees back on top of the loan and recalculate. This is resulting in homeowners facing higher monthly payments than they did before the "modification".

I see this differently.

If even 20% of loan modifications set loans on the right course, then they have done their job.

I worked with subprime home lending during its heyday. I can say, with confidence, that well over half of the people put into subprime loans had no business buying a home. They were either buying too much house, already in too much debt, or too chronically irresponsible with money to be trusted with a mortgage before they cleaned their act up.

Of all the loans in default again, how many of those are to people who took the mod that was offered to them, even though they are too far in debt to continue on as a homeowner?

Owning a home is a huge responsibility, and many people are simply not up to it, at least with their current mindset. These people had subprime loans thrown at them, and this is what happened.

JW1980

I was not in the subprime mess my circumstances had to do with health issues, just want to get that out of the way.

You worked in the subprime hey day. And say half the people put in subprime loans had no business buying a home. Why did they get the loan to start with, what happen to the banks saying this was not a good candidate? Could it be Greed? What about all the people who had arm’s pushed on them for no good reason other than they were a cash cow for the broker and lender with promises to do a refi and make even more money off the borrower. How many people were told do this ARM and you can buy that big house with this loan you too can afford your dream house. How many people got told on these great ARM programs yes you can afford to own it is cheaper than rent. How many people got told it is cheaper to use the ARM instead of FHA? How many brokers and bank employees have come forward and said hey we were forced by management to push these loans.

The mods the banks are doing for people are useless and they are only doing them to say we are helping it’s not our fault people are still not paying. OMG I read and hear people getting mods for a low rate for two years and a jumbo payment after 24 months, what is that? Than some banks want thousands of dollars up front, as if people had that. Some want to make it 40 year loans and start the clock on the loan again. Hey so they don’t lose a dime because they add another 10 years of fees, GO Banks keep helping to make people homeless. I could go on but this is sad. At this point it is no longer the arm’s Subprime loans that are in trouble it is so many people. So many people in the next 2 years are going to have black marks on the credit reports from this mess.

Pointing fingers is not going to help and if you must point what about pointing at the banks and brokers they are also a part of this mess not just borrower.

guess you didnt have a problem with subprime loans as long as you were making money off them did you.

In fairness to the banks, they are being SWAMPED with "I want my loan modified.............I have a hardship! I need my payment reduced and the principal reduced too!!!" Lenders have thousands, sometimes tens of thousands of files requesting "loan mods" on their desks.

Out of about 3 people that call, about 3 are really qualified or a good candidate for a loan mod.

A-holes call everyday seeking to exploit the system. Examples??? Woman calls up complaining of hardship, how tough times are, how they were scr!wed with buying at the top of the market and are upside down on the property by a marginal amount..........and puts on a big emotional front talking about how tough times are and her family REALLLLY REALLLLY REALLLLLY REALLLLY needs their loan modified to get by.

Sound good?

Ok. Turns out her husband is a doctor, makes $20k a month net income, they are NOT behind on their mortgage and they want their $6k mortgage reduced on a federal supported hardship program.

Tell her income is way too much to have the lender believe their is a genuine inability to pay, then she changes her income to, Fine, I was wrong, that was actually for last year, if i redo our profit loss statement, it will be $8k a month......."will they qualify us???" No, it wouldn't qualify because on your other expenses, even if your lender agreed to reduce your payment, you still wouldn't have enough money to pay your mortgage and other expenses based on the 8k a month. Then she states " fine, I can include our $2k income from our rental property we receive monthly that is all paid off!!!!!!"

Does that sound like a hardship to you? Do you think this a rarity, no, it is the norm of loan mod. requests.


These people, are the majority of callers, the majority clogging up the lenders available resources, wasting everyone's time, and are gaming the system.




However, the flip side of the coin is, lenders are also abusing the "loan modification" to bully homeowner and extract more fees from them in interest/penalties/lawyer fess. There are some lenders, that if a homeowner asks to be transferred to the "loss mitigation depts." guess who they transfer that homeowner to.................the collection department of the lender. The collection department of the lenders are cutting loan mods deal, that is messed up.


If you are a genuine candidate for a loan mod., it is possible to have great things done that can really put you on the right track if you are financially distressed. I've seen 2% fixed for the balance of the loan and six figures takes off the principal balance, with all lates payments forgivien, but you really need to qualify and be represented. Myself, i wouldn't recommend approaching a loan mod without being represented, there are too many risks and the downside is huge. Sure, you might be one of the ones that is successful or maybe the lender will be scr!w you. You can bet the lender is protected with lawyers to review their negotiations and protocol, and it won't be your interests they seek to protect, it will be theirs.

This is why those programs were originally created, to make credit available to good people who were the subjects of bad circumstances.

The subprime formulas worked on paper, but they did not account for the people who were irresponsible and already stretched thin, and were borrowing more than they could handle. The formulas did not account for what might happen when unexpected events impact the financial stability of an already strained borrower.

Despite all of the foreclosures, there are many stable homeowners who bought through subprime loans. Some are paying on those loans, others have straightened out their credit challenges and have since refinanced to prime loans.

Those were the people who subprime lending was created to help.

The anti-bank crowd likes to assert that banks somehow wanted to put people into products they couldn't afford, just so they could lose hundreds of billions in the process. That simply isn't true. I can't count the number of people who needed subprime programs due to credit challenges caused by unexpected medical bills, divorce, death in the family, sudden employer bankruptcy, etc. Without the programs, these people would have had to wait many years to achieve homeownership.

The subprime programs initially started soundly, but guidelines loosened as the bubble developed.


In response to your question, the reason these borrowers got loans is because no originator had enough information to point a finger and accuse any specific borrower. An originator might be able to assume that in a group of loans, a few bad ones got through. Although it sounds easy to accuse someone in hindsight of borrowing too much, making that accusation when a borrower who fit the guidelines made an application is impossible, unethical, and borders on illegal.

There were some operations that were blatantly lending in predatory ways, but that is a slim minority, and is not representative of how the industry worked. Prior to subprime, those operations were committing fraud to get subprime borrowers in prime loans. Subprime programs did not create those crooks.


The subprime programs accepted many borrowers that FHA did not. FHA still does not accept many of these borrowers, and was much more strict before some regulations and automated scorecards were loosened to help purge the toxic ARMs from the system through FHA refinances.


The mods are not useless. For whatever reason, some people cannot refinance at all. This generally stems from negative equity.

A mod is a useful tool in which the mortgage itself is the cause of default. A mod is the appropriate solution to a situation in which a borrower would be stable at 6.5% fixed, and was fine at 6.5%, but began to drown when the ARM went to 8.5%, 10.5%, 12.5%, etc.

Banks do not want to see people out on the streets. They are willing to lower rates to below market rates, because a loan in repayment is more valuable than a loan in foreclosure. The point of the mods is to reduce loss - taking payments at 6.5% from someone unqualified for that rate is better than putting them into foreclosure, once the loan has already been made. That doesn't mean the loan should have been made to begin with, though.

The only people who want to see foreclosures are foreclosure speculators. Neither banks nor borrowers win when an agreement for rehabilitating the loan cannot be reached.

I don't know where you are getting the idea that huge upfront payments are required, because that is not usual practice. The FDIC has been pressuring the few remaining banks holding paper that must be modified according to that rule.

Requiring huge upfront payments from people who can't make the regular payments is counterproductive.




Why don't you reread my comment, and stop reading things into it that aren't there.

My analysis of the subprime market was limited to an aggregate basis.

Out of ten subprime purchases, five might have involved loans to people who had no business owning a home.

That has no bearing in any way on the wisdom of making any individual loan. The difference between two borrowers with blemished history and non-prime criteria can be razor thin. The person originating the loan has no rational basis to accuse some borrowers of bad behavior, while at the same time allowing others the opportunity to own a home despite credit challenges.

The originator has no way of knowing which specific borrowers are the ones who are habitually irresponsible, and which specific borrowers have had credit challenges but are working hard to achieve their dreams. The only way to keep the irresponsible from reaching the closing table would be deny credit to everyone who didn't meet prime criteria.

The originator is hired by the client to do the loan, not to judge them. As a financial professional, the originator has a legal responsibility to respect the wishes of his client, just as an attorney has the legal responsibility to follow the wishes of his client, even if those wishes may not represent the best legal strategy. An attorney cannot plead his client as not guilty, even if he thinks he can win at trial, if the client wishes to take a plea bargain and get it over with.

One might liken it to a high crime housing project - some units house good, hardworking people, while others house drug dens. Government officials do not have the right to deny housing to someone on a hunch. The police do not have the authority to go from unit to unit, conducting warrantless searches, to separate between the two.

Even if an originator could know who is and isn't responsible and committed, they have no influence on the irresponsible.

Irresponsible people do stupid things as far as home ownership is concerned. If an originator could identify one of the irresponsible people, and deny a loan to him, that person is going to go get it somewhere else.


The entire point of my post was to illustrate that, on an aggregate basis, there are substantial numbers of subprime mortgagors that borrowed trouble, and that loan modifications cannot be expected to have majority success rates, as a substantial number of borrowers are too far in trouble for their mortgages to be redeemed.

In fairness, very few lenders engage in this practice, and the FDIC is cracking down on the few remaining practitioners.

Loan modification is not a way to extract penalty fees by bullying distressed homeowners.

Loan modification is a tool to prevent a foreclosure which hurts both lender and borrower.

I don't know about what percentage of lenders do this, but I know mine did. They said they could do a loan mod based off my income, then when looking through the documents they somehow saw fit to restore my mortgage balance back to it's original amount. Why the heck would I accept a Loan Mod when it's adding 10k of principal back on the loan? I just called to see what they could do. No Principal reduction or anything like that, just if we could get the arm to a fixed.

One can go on and on playing the blame game but we are now in the post game period. The Housing Legislation Bill was just enacted Oct 10th and was projected to aid 400K homeowners. As I stated in my first post the loan modification programs have helpd just over 2K families.

8MM more foreclosures Credit Suisse projects over the next six years.

I'm not pulling these stats out of thin air.

Puh-leeze do NOT preach about banks to an ex corporate Wall St banker. I admit we were just high class street walkers. That is the reason I became a bk advocate!

They took the 350MM $$s and have it squirreled away. Their good buddy Paulson didn't ask for any accounting.

Elizabeth Warren, Harvard law professor (bk law her expertise) is on a recently formed Congressional Oversight Committee....go to Cop.senate.gov and ask the hard questions. BE HEARD. IT'S YOUR MONEY!

savemanatees

PS You will find the Congressional Oversight's Panel's first 35 page report that repeat these stats. So take your arguments about how great the modification program is working to the Committee.

isnt hurting the lenders too much.. they arent doing enough of them so let them reap what they sow.

JW1980,

I am far from anti Bank, You state that more than 50% of people should not have gotten loans based on past credit and ect. Now you are back peddling. Yes some people did benefit from ARM’s my point is simple the banks are to blame as are the borrowers. If we are going to point fingers than yes point in both directions of the loan one the person who took the loan, two the person who arranged the loan and three the company who accepted the borrowers and than allowed the loan to process. It is that simple. I do not think banks wanted to lose money I do think that they took there sweet time in working with people so A. people could keep the home, B. Take control of the problems, C. Make it workable for all.

Yes many banks are doing mods and sure some may work but most are not workable ( useless as I called it, if they raise payments, want huge upfront payments or add huge amounts onto the loan that is useless as people will end up in FC anyway) Now are they as few as you claim, well if they are as few than why are so many people not getting help but instead being told that they have to accept junk mods the proof is in the FC listing in the news paper weekly. Who wants to add an extra few thousand to a loan, who wants to pay huge cost up front and who can afford this in a time of need? Yes maybe not many lenders are asking for upfront payments but many are adding lump sums into the balance or that is what was happening if that has changed great but I keep seeing FC in my paper and they do not seem to be slowing down. I hear people talk about all the crap they are being pushed into or how they can not get help. So please know you too can one day be in need and than see if you think the banks are your friend.


Cinderella

I am sure many people are attempting to take advantage of the mods. The sad thing is these people think they are right because they are credit worthy, which great for them but help the person down on there luck because people never know when they will be in the shoes they judge!!! For those people who do try to take advantage, I hope the rug is never pulled from under them they will die of fear!!!!!!!

I agree wholeheartedly. The banks issued overly optimistic underwriting guidelines, that, while beneficial to many responsible borrowers with blemished credit histories, allowed irresponsible borrowers to buy homes they could neither afford nor maintain.

The problem is that an originator doesn't know which is which with any certainty.

Technically, it is a violation of the law to not make credit equally available to equally qualified applicants. So what is an originator to do when he has two borrowers, both of whom qualify, but he suspects there is something "just not right" about one of them? His only choice would be to break the law, deny them for an arbitrary reason, and send them down the street to someone else who would give them the loan anyway.

The ARMs were part of the problem. While some subprime risk classes required indexed rates to get secondary market financing, the system was ripe with abuse and poor disclosure. Take, for example, the 2 year ARM with a 3 year prepayment penalty. The intent of that type of product is obvious.

Not so much credit worthy as they don't want to miss an opportunity to reduce their payment.

Even though LM's are done on the basis of a hardship and genuine inability to pay, it doesn't stop a person with no genuine inability to pay their creditor trying to sneak into the system. You have folks with 5.5% fixed interest rates, not behind, even equity in their homes, not behind on their mortgage, pleading "I'm a hardship! I need my loan modified."

They aren't a hardship. Will they lie, try to game the system, and make-up stories? Sure. Do they clog the system up? Sure. Do folks that genuinely need their lender to work with them in good faith to renegotiate the mortgage note suffer because of gamers playing the system and clogging up resources and casting suspicion on EVERY PERSON seeking a loan mod? Sure.

And it isn't to say folks that have a genuine inability to pay their mortgage are not difficult to deal with. You have folks that insist on paying $1,500 a month in credit card debt, while demanding the bank to reduce their payment by 60%, less than their credit card debts, so they can keep their credit and cards in good standing.

Then you have folks who are fairly reasonable and have hit tough time.............terminal illness, layoffs, reduction in hours, an ajdustable that has caused their mortgage payment to double while their income has been reduced. Sad truth, a good chunk of these people are not going to be able to get through to their lender, partly, because of the folks that clog up the system with no genuine hardship but will insist they have one because they do not want a deal to pass them up.

Trivia time.

The nation's first Adjustable Rate Mortgage law was a product of Wisconsin, a creation of (get ready for the irony...) Mr. William Double.
Mr Double served in the WI legislature from 1939-1944, later becoming a lobbyist for the Savings and Loan industry.
"will double". Hah. Anyway....

The reason the S&L industry was interested in ARM's was related to the lender's expectation of a post WWII home building explosion. This, they believed would result in many thousands of fixed-rate loans being written at the prevailing rate- while lenders were suspicious that within the next decade rates would rise considerably. They forsaw themselves loaning money out at 6% while having to pay 8% or more on deposits- a sure way to collapse a bank.
ARM's were created as a way to transfer that risk away from the bank and over to to the mortgage borrower.
They were right, btw- although off by a few years. The interest rate problem they foresaw finally occurred in the early '70's. S&L's barely survived- at one point having their reserve requirements reduced to 1%. Their reprieve was short lived however.
Securitizing mortgages became popular (1980's) partly as another way to deal with this same problem- lenders could sell off their loans and recover their money in a matter of days instead of gambling on interest rates for 15-30 years.

Just in case anyone might wonder why ARM's exist. Now back to your regularly scheduled discussion.

That specific product is why Champion said "yes" when your bank said no.

I'm sorry but I totally disagree with the above stmt. Banks know a heck of a lot more about your finances than you think.

It is obvious that the ambience of Greenspan's deregulation......"give a mortgage to any breathing body standard" gave originators and underwriters an easy job. It also gave the industry at large very low stds in qualifying job applicants for these positions.

The sub prime crisis started in '06 with the Ameriquest bk. No one paid any attention to it then. But now it isn't isolated to the sub prime mkt...it is everyone.

So given the timing the sub prime discussion is a day late and billions of dollars short.

sm

Loan mods will become moot when Obama takes office. I don't agree with this but the sanctity of mortgage contracts and contracts in general is in jeopardy. With cramdowns for first mortagages in bankruptcy on the horizon, judges will now be setting payments and interest rates.

If you're talking about changes in the bk law, congress will have to pass it first. I'm not so sure they would do that.

It's done. Nancy Pelosi and Harry Reid are for it and Obama will sign it. I think your whistling past the graveyard

While I tend to agree with you on this. I would have to say that there is seldom 2 applicants that same the exact same credit history and income that are also buying a house for the same prices and what the same terms on that mortgage. Different mortgage products can have different credit qualifying criteria. For example, a 3/1 can have different criteria than a 30 year Fixed and they should. The risk is certainly greater for the lender with a short term rate on a loan term note. While lenders are not able to discriminate based neighborhood they can have different credit qualification criteria based on your geographic location California Vs. Arkansas. Lenders should have understood the increased risk loaning to certain individuals in markets where is was widely known that home values were being inflated artificially and sometime illegally.

Good morning. This is a great thread -sad, but informative. Many posts above, someone recommended "being represented" when doing a load mod. By whom? An attorney -$$$$$. Credit counseling -1-880-hope -was not much good at all for me.

I tried all summer to ask Wells Fargo to mod the loan - I live in Tucson - ouch. My income dropped 40% 1/20008. Some lucky (??? remains to be seen I suppose) couple have put in an offer (I had 8 in all....) on my MLS short sale at $199k -and the bank is a step away from approving their fu##@#g offer! The same "offer/request” I have been making to them for 6 months. Perhaps I messed up –no “representation”??). All Wells Fargo offered was HIGHER catch payments spread over a few months! Morons. The “final step” in this process - is after I sign a $25k unsecured note -"to mitigate the PMI companies losses" – I said no –called their bluff –and they closed the file. Geeez. OK –so now I had to say “yes” and probably will not pay a dime on it and default on that …. I bought this home 19 months ago for $269k. A couple will walk in here in a short while (???) and get this house for $199 -and probably a great interest rate!

Am I whining too much. Or is this REALLY messed up for a lot of us – as this happened to you?

You are not alone many people are not getting help or are getting useless mods that are costing more than it is worth, many others are in the same boat as you. I wish you good luck

In practicality, the applications have to be assessed on a pass/fail basis, using the investor's criteria applicable to the specific scenario and geographical locale. If a broker refused a loan to a qualified (per the investor's guidelines) applicant on grounds that the person was borrowing trouble, then they are asking for hell from regulators. The person will go down the street and get the loan anyway, and the broker is open to a complaint regarding racism, sexism, redlining, or another form of discrimination, even if it didn't actually occur. Hell, I've been reported to the NAACP because I couldn't get a loan for a man with a 544 FICO.

A correspondent has more regulatory leeway in making denials, as their money is on the line, and they technically are setting their own criteria to whatever is needed to sell the loan. Still, though, doing so won't stop all of the people borrowing trouble, and will bring regulatory heat.

The only situations in which making a moral decision on what is and isn't a wise loan is unlikely to lead to heat is when the loan is covered by HOEPA or similar state legislation, or is commercial in nature. No regulator is going to give any trouble to an originator turning away stupid borrowing on hard equity or commercial products, unless substantial evidence exists that the denial was made for a prohibited reason.

As for the risk, short term notes have a higher default risk but a reduced interest rate risk. Many of the investors buying subprime CDOs will not purchase any note with a fixed term of longer than 2, 3, 5, or 7 years. If a prospectus states a maximum term on interest rate risk, then the manager is not going to deviate from that, even if it is patently obvious that most notes in the pool will not be held for extended periods.

From a secondary market perspective, the ARMs became necessary to pull in money from the funds who had to limit their term exposure as a SEC compliance matter.