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I would not get to bent out of shape over the prospect of these “principal reductions” as it almost 100% guaranteed that it is just another Red herring. I would imagine these ruthless bankers will make sure that the rules are so hard to comply with that virtually nobody will qualify. Most likely they will set the forgiveness date to something far off into the future like 5 or 10 years and part of the deal will be that they struggling house debtors immediately catch up on their mortgage and keep it current the whole time. This will lure back in some of the strategic defaulters who can still afford to pay while making sure that those who do not have the means get no help whatsoever. There will be plenty of opportunity to get the others to trip up over the next few years and void the agreement. That’s how these guys work - I have no doubt the devil will be in the details on this one.
Total red herring.
It’ll be a setup to turn California Non-Recourse high $ purchase loans into debt slavery recourse loans.
Mish already crunched the numbers.
http://globaleconomicanalysis.blogspot.com/2011/02/obama-seeks-20-billion-in-civil-fines.html
Looks like approximately $4,000 per debtor and that doesn’t include the people who haven’t received NOD’s yet haven’t made a payment in years.
BTW…did you see Calculated Risk shilling for the NAR?
62% of homes over $5,000,000 purchased in January were CASH purchases. Definitely something for PlanetRealty and TinMagnet to stroke themselves over.
Too bad there were only about 15 (or less) homes that month…out of over 800 listed.
Speaking of tenmagnet—ten, did you see this?
http://www.redfin.com/CA/Irvine/24-Vernal-Spg-92603/home/5899655
Shady Canyon breaks below $2M. Check out that July 2006 sales price.
Shady Canyon. Not immune.
Nice find and good to see you post again.
The listing looks legit.
A few weeks back, I ripped Lee in Irvine when he made his apocalypse now prediction for Shady Canyon.
We’ll see if it’s real or some low-ball tactic disguised to spark a bidding war.
That’s a property profile in the IHB’s future. Thanks.
24 Vernal Springs went pending.
No matter what form these “principal reductions” take, they won’t ammount to a hill of beans. What’s really needed is bankruptcy cram-down of primary residence mortgages.
While some may think this is a giveaway to “bad” debtors, actually it helps preserve real estate values for everyone. It costs banks real money to evict a debtor, fix a property and to sell the property. When the property is sold, the bank only gets the present value of the property. However, the bank is also out all of the costs. Furthermore, bank forslosures flood the market and destroy home values.
If the mortgage holder could get his or her principle reduced to the present value of the property via bankruptcy cramdown, the bank does not have to pay the costs associated with eviction and resale. The local propety market does not take a huge hit caused by a flood of REO properties on the market. And the homeowner is able to keep the property if they can afford to pay a mortgage based upon the present value of the property.
Everyone wins. Bankruptcy cramdown happens with every other secured loan, including mortgages on jets, vacation homes, and yachts. The reason it is not allowed on primary residences is to scew over homeowners and favor banks. The prohibition against primary mortgage cramdown has to go.
“...Let’s say you see your spendthrift neighbors HELOC their house, buy all the toys, take trips, and generally live a Ponzi…”
Your spendthrift neighbors can already do this through bankruptcy. It’s a little more difficult if they’re higher-earners, but still the same concept.
Also, I will indirectly benefit from loan modifications and principal reductions on my spendthrift neighbors’ homes because that’s one less house on the market in my neighborhood. If it holds-up the value of my home a bit, that might make refinancing for me (the non-spendthrifter) easier.
I’m not advocating for principal reductions - just sharing the idea that they can benefit more than just the spendthrift deadbeat…
“I will indirectly benefit from loan modifications and principal reductions on my spendthrift neighbors’ homes because that’s one less house on the market in my neighborhood. If it holds-up the value of my home a bit, that might make refinancing for me (the non-spendthrifter) easier.”
The benefit you describe works against a renter or prospective home buyer who must pay a higher price.
The housing bubble has created a form of class warfare between homeowners trying to preserve values and buyers trying to get as good a deal as homeowners got years ago.
Exactly right. And with 60-something percent of the population claiming the title of “homeowner” - it absolutely no surprise which group is making most of the noise and demanding that the Government and banks “do something”.
I am still not hearing of any renters demanding government programs to help subsidize rental expenses. Homeowners should recognize the societal benefits to renters having a roof over their heads which produces low levels of homelessness, crime, etc.
While not drastically overstated, 60%+ sounds too high. I read that the highest the homeownership rate got during the housing bubble was 57%, and I’ve read more recent articles saying that that rate has fallen as low as 52%. So, we’re about evenly split between homeowners and renters now.
Of course, homeowners as a group do tend to have higher personal net wealth and vote more consistently, so it’s still no question who the politicians are going to favor.
-Darth
52% sounds way low to me. I was going off of the Wikipedia:
http://en.wikipedia.org/wiki/Homeownership_in_the_United_States
The homeownership rate in the United States[1][2] in 2009 remained similar to that in other post-industrial nations[3] with 67.4% of all occupied housing units being occupied by the unit’s owner.
I can’t seem to find the articles that I read before, and the official stats all agree with you. Guess I was wrong. In any case, no matter the rate, homeowners will always have more political power, due to higher incomes and more consistent voting patterns.
-Darth
I think Darth’s numbers may be CA specific
Here’s a real life example. One of my clients in escrow now has a couple of other properties. Two of the homes were financed with WAMU loan products. What stands out is that these clients are NOT upside down. They are NOT behind on their payments. They are NOT in a distressed position.
On one loan Chase is offering to turn their ARM loan in the low 3’s into a 30 fixed loan at 4.0%. No fees, no application, no appraisal, no underwriting. Sign here, and you’ve got a 4.0% rate. Based on the property type and other factors, a new Chase retail loan would come in at about 5.75%. This refinance is being called in the documentation a “Loan Modification”. Remember this was unsolicited by my client. On a second property Chase suggested if the borrower paid off their 2nd TD, Chase would “forgive” a bit over $20,000. Did Chase suddenly have a “Grinch Moment” listening to all the little Who’s in Whoville and decide with their hearts growing two sizes too big and start writing below market loans and forgiving principal?
No. Since these are called “modified loans” (for AAA paper home owners) Chase now can claim another successful private modification made, perhaps to keep the Gubmint from coming after them for poor servicing and modification performance.
My financial recommendation for the next 6 months: Go long pitchforks and torches. Perhaps you’re rate / principal reduction will be granted.
Soylent Green Is People.
SGIP, your dose of reality is difficult for many here to swallow. Principal reductions and loan modifications can’t happen because they don’t want them to happen. I prefer the cold hard reality, hey it sucks it’s happening and will continue to happen. The lesson learned? Next time don’t forget to join the party.
Ahh for a DeLorean and a Flux Capacitor… We’d all lever up with 100% LTV Cash Out Option ARM’s, waiting for Uncle Sugar and the rest of the unwashed to take care of the mistakes we made.
Playing devil’s advocate, upping the rate from 3 to 4 does increase interest income, but absorbing the interest rate risk. JPM probably assumes that short term rates that set the ARM will stay low for a while.
As for the 20k to clear a 2nd, that may be an incentive to help reduce their overall exposure to 2nds in general. A good portion of the 2nds, especially in 80-20’s are worthless, so even though this 2nd is not, it is seen as though it were by investors/regulators.
Is the loan in escrow going to JPM too? I’d be pissed if I were JPM, helping this person, only to have them take other business elsewhere.
JPM wants to show how great their modification program is progressing, while at the same time flipping the loan to FNMA - a recourse loan now since it’s a refinance!
Don’t get me wrong. This is a great deal for the home owner. It’s just being presented as a help up for a borrower who didn’t ask for it while those really in need get the finger.
The loan in escrow is going through our company. We are not a broker. Besides, our rates are often better than Chase’s.
Except for the 4% sweetie they got. I doubt they’re just passing it to FNMA, as FNMA’s rates would have been > 4%. Maybe they are sacrificing their spread.
They may be looking for no-cost modifications to boost their numbers, but we should not be surprised. Asking a business like JPM to help out, when they are successful by crushing competition, and laying off large numbers of workers after acquisitions, and developing the most opaque ‘financial wmd’s’, is a bad idea. We should not be surprised when they are not as helpful as we want.
A friend of mine bought an $800K house with a $600K loan and made major improvements to the house. At one point (close to the peak, perhaps?) it was worth almost $2M and he had a very large line of credit for his business. Now the credit line is “due” and the bank wants all of the money back unless he signs a new, “bend over” line of credit because the house has dropped so much. They’re threatening to foreclose on him if he doesn’t pay or sign. So they’re modifying the people that they can’t squeeze, and they are going after the people with money with a vengeance.
Not sure I understand - A typical HELOC’s “line” could be reduced or eliminated, but that only means you won’t be able to draw on it again. Other than that, the HELOC agreement sets the adjustable rate and payment schedule. That can’t be changed due to the value of the security.
That actually happened to me a few years ago when Ditech pulled out of the HELOC market. They froze my line (I’d only used about 20% of it) and I just had to continue paying off my balance until it matured.
When I went to BofA to get a new line and pay off my Ditech line, BofA would only give it to me if I opened the same amount of HELOC. When I told them that I only needed 1/2 that amount “open”, they said they’d only approve the full amount. (!)
My friend has neared the end of his HELOC term, so the bank is negotiating the new terms for the new HELOC.
“So they’re modifying the people that they can’t squeeze, and they are going after the people with money with a vengeance.”
Just as I always suspected they would
I do not have a prediction on principle reductions, but ...
I do know that the mortgage debt market can not clear without another 27% reduction in home prices in inflation adjusted dollars as time progresses. Whether that reduction is accomplished by increasing the money supply or whether is accomplished through principle reductions, I dunno, but it will happen.
High-profile agent’s headquarters in default
http://lansner.ocregister.com/2011/03/01/high-profile-agents-headquarters-in-default/101423/