Banks are again encouraging strategic default with their policies. This time they are reducing the FICO score impact because they want to keep the credit card business going with strategic defaulters.
One of the major fears people have concerning acclerating their mortgage default is that they will be cut off from future borrowing by a lowered FICO score. This fear is important to the functioning of the system because if people do not fear the ramifications of default, many more will default, and bank losses will mount.
Back in April Io wrote Fannie Mae Encourages Strategic Default by Reducing Punishment Time for New Loan. Now, lenders are succumbing to pressures from the credit card side of their business to lessen the impact of mortgage delinquency. Will make enough on the credit cards to make up for what they will lose by encouraging strategic default?
Posted by Stephen Gandel — Tuesday, December 14, 2010 at 1:13 pm
It appears not paying your mortgage won't hurt your credit as much as you think.
The New York Times reports that banks, in an effort to boost their credit card business, are courting customers who decided to default on their home loans. So-called "strategic defaulters," who walk away from their mortgage loan because they owe more than their house is worth, are now apparently considered to be good potential customers. Voluntarily choosing foreclosures was once seen as financial suicide. It was assumed that banks would shun those that didn't end up paying back their home loans. But it turns out that was more of a threat by the banks. That's good news from the millions of Americans who are underwater on their homes. But if banks are truly giving strategic defaulters a pass that could lead to a new wave defaults, and more pain for their mortgage lending divisions and the housing market in general. This seems like another dumb move for the banks and for our economy. Here's why:
The banks' credit card businesses have taken a hit from the recession and new financial regulations. So they need new customers. The question is where will they get those customers. In the past two years, many people have had problems paying off their debt. Others are already over leveraged. So in that context it would seem that people who walked away from their homes would make good candidates to be new credit card customers. First of all, they could have kept paying their loans. Second, most strategic defaulters are now all of a sudden much more debt free, especially if they chose to become renters. That may mean they are even a less risky borrower.
The truth is, strategic defaulters probably are better creidt risks after the default. It will be much easier for them to make payments once they don't have to pay the huge mortgage.
The problem is that while there have been a significant number of strategic defaulters, there are millions more who are underwater and still paying their mortgages. On Monday, research firm Corelogic reported that there are nearly 11 million homes around the country that are worth less what borrowers owe on those houses. That was down from a peak of 11.3 million homes in the beginning of the year. But it is still a lot. According to Corelogic, 22.5% of all homeowners with a mortgage are now underwater. Worse, home prices have started to fall again. If values were to drop another 5%, Corelogic estimates the number of borrowers who owe more than they own would jump 2.4 million.
Not all of these people will end up defaulting. Many borrowers, out of love for their house or obligation, will choose to continue to pay even if it makes more financial sense to walk away. Still, we have come a long when from the moral outrage that was once associated with walking away from your mortgage. And that makes sense to me. When a bank makes a home loan they should realize they are taking on real estate risk as well as credit risk. They share the risk of falling home prices along with the consumer. So individuals should have a right to stop paying on their mortgage if it will improve their finances. If banks want to keep them paying, they should have to offer incentives, like the very good Responsible Homeowner Reward Program.
I don't think banks should run special programs that encourage people to keep paying their debts. People should do that anyway. If they don't repay their debts, they are not extended credit in the future. Obtaining future credit is what motivated borrower behavior. People will do whatever they have to in order to obtain that next loan. Usually that means continuing to pay the last one.
Yet, I think shunning those customers that do end up walking away from their mortgages is a good thing as well, for the banks and for the economy. For the banks, even offering tacit approval for strategic defaulting seems like another dumb move. Even if many of the loans were sold off to investors, banks lose money when people stop paying their mortgages. And while I haven't done the numbers, my guess is that they would lose more money from the added defaults than they gain from the new card business.
Second, one of the problems that led to the financial crisis was too much risk. Strategic default should be one of the mechanisms that helps to deleverage the economy. But if the people who walk away from their mortgage just become the pool from which banks pitch high-cost credit cards, then financial healing process we need won't happen.
Lenders don't want to see deleveraging even if it sit he best thirng for our economy. The banks don't care about the economy. They only care about making the most money they can by keeping people in a state of indentured servitude. Bankers would be elated if people could borrow their way to prosperity and keep all their bad debt alive and active.
I agree with this author that the banks shouldn't be giving strategic defaulters access to easy credit so soon after the default. Word will get out, and people will have one less reason not to walk away from their mortgages.
According to the listing agent, this listing is a bank owned (foreclosed) property.
BANK OWNED HOME!!! Beautiful Home in Highly Sought after Gated 'NORTHPARK' Community. Desirable Corner Lot Location! Home has 3 Bedrooms Plus Downstairs Office/Den that Could be Converted to 4th Bedroom. Tiled Entry/Living Room, Guest Bath Downstairs with Pedestal Sink, Open Modern Kitchen with Granite Countertops & Center Island with Space for Wine Refrigerator. Kitchen is Open to Family Room with Granite Fireplace, French Doors Open Up to Back Patio/Dining and Family Room Area, Spacious Master Suite with Walk In Closet and Dressing Area, Two Sinks Separated by Corner Bathtub with Tiled Floors in Master Bath. Upstairs Separate Laundry Room. Crown Molding and Ceiling Fans Included in this Exquisite Home! SUBMIT OFFERS BEFORE IT GONE!!!
I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.
The cartel of banks holding prices up are openly stating their contempt for the families of today's buyers and forcing them to pay inflated prices to obtain their American Dream.
When you read trade publications you get a point of view on issues that is often unbiased by the political correctness of the mainstream media. I found the article today in www.bigbuilderonline.com written to interested parties in the homebuilding industry. The article in bold in its statements that the banking cartel is colluding to hold up prices. There is a matter-of-factness about the articles tone that says this activity is just and desirable. I think the bank's behavior sucks.
By Toni Momberger, San Bernardino County Sun, Calif.
Dec. 02–Inventory is low all over the area, and there are frustrated buyers among us.
They have saved a 3.5-percent down payment. They have an income and good credit. They want to take advantage of today's low prices and low interest rates. They tried to get the $8,000 tax credit.
They've made dozens of offers in the past year.
How can there be so little available when so many have lost their homes to foreclosure?
The properties are not all being released.
Banks are intent on screwing buyers. They are knowingly and intentionally withholding inventory in a futile attempt to sustain bubble prices — prices that were never supported by incomes.
Ultimately, the banks will fail to keep prices high. Competition among cartel members to liquidate their shadow inventory will put pressure on prices, and if the process drags on long enough affordable housing advocates may finally apply some political pressure to force government action.
"My understanding is there's between 1.2 (million) and 1.6 million in California alone," said Robert Laguna, an agent with ReMax Masters in Covina.
"Inventory has been diminished considerably, so they have to release some of these properties."
Shadow inventory, also called ghost inventory, is the population of houses that banks already own through foreclosure, but have not released to the market.
No, shadow inventory is both bank-owned properties not on the market and future foreclosures from currently delinquent borrowers. It is the latter group that is by far the largest segment of shadow inventory.
A small portion of the shadow inventory is a result of banks' being overwhelmed. The homes may just not have gotten processed yet.
But everyone seems to concur that most properties are being held to prevent another market crash.
And only a few vocal opponents are pointing out the problems with this approach. Lenders and loan owners fall on one side of this issue, and renters and buyers stand on the other.
"Fannie Mae and Freddie Mac own most," said Laguna. "The government said it doesn't want to flood the market with properties, because if it did, the properties will depreciate. Values will go down."
Adam Quinones of Mortgage News Daily added on MND site's NewsWire, "To reduce the cost of maintaining the condition of foreclosed properties, banks have delayed the liquidation process
and allowed delinquent borrowers to remain in their homes."
People who are not paying their mortgage or rent are living in property they don't own without paying for it. That is squatting by another name.
"In addition to that, by delaying the liquidation of foreclosed properties, banks have avoided large asset value write-downs."
Failing to recognize losses by avoiding the write down is amend-extend-pretend. This farce will ultimately shake confidence in our accounting and financial reporting systems here in the US. If not for the implied protection of our major banks as too-big-to-fail, investors would be avoiding our banks for lack of transparency and likelihood of bankruptcy.
Laguna said the key is to release some, then let the market stabilize, and repeat the cycle until all of the shadow inventory is bought.
"They have to release them in waves, not in tsunamis. They have to be very careful how they release them. They can't release them too slowly, because they'll drag it on for years and years."
Part of the frustration is that 3.5 percent means the buyers are planning on a Federal Housing Administration loan.
Because of the high default rate, the FHA has become pickier about the condition of homes it'll take as collateral.
"What banks are releasing in the marketplace are REOs that need work. FHA offers will be rejected in favor of conventional loans, so banks don't have to fix the house."
Banks are required to get three job bids per improvement.
They don't have the resources to deal with it. As a result, "very rarely does an FHA offer get chosen," Laguna said.
FHA loans always end up on the bottom of the list of seller's preference. There are so many costs and fees, and the hurdles to overcome that can kill escrows. FHA buyers are riskier candidates to fall out of escrow after wasting months of time in the process.
It can be argued that the cumbersome FHA process should be cumbersome so competitors can provide money under better terms and make a profit. The FHA is the lender of last resort, and right now it is three times the market share (25%) than normal (8%-10%).
If they're not immediately liveable — for instance, if the wiring has been yanked, or the toilet's gone — no bank will fund the purchase. Those houses must be bought with cash, and are often going to investors.
With foreclosures composing most of the transactions today, obviously, not all of the shadow inventory is being held.
Laguna said most of the houses not owned by Fannie Mae and Freddie Mac are getting released, and some government- owned properties are going on the market.
"How (Fannie and Freddie) decide what to release, I don't know," he said.
If you watched a family moving out of your dream home, and have been waiting for the sign to go up, you may just have to wait. Shadow inventory is not easy to buy.
Shadow inventory is impossible to buy. That is part of the problem.
.
Shadow inventory is composed of many delinquent borrowers many of whom are attempting short sales. When the short sale gets held up for months as owners and lien holders negotiate, the property is not effectively for sale. It is that rare gem under glass you can look at but can't touch. You know it's there, and it's ostensibly for sale, but it can't transact without approvals from lien holders that are not forthcoming.
None of the delinquent borrowers in this part of shadow inventory have gone through foreclosure. The bank does own them. The delinquent and most often underwater borrower has nothing and is paying nothing while this drama plays out.
Shadow inventory also consists of properties banks have foreclosed on and they now own. These properties may be renovated to sell, some are rented out, but many simply sit empty gaining no rental income and serving no family as a home. This inventory is considered shadow because it is not for sale on the MLS, but it will be someday soon because it isn't generating banking revenues sitting empty.
When I think of shadow inventory, I am not concerned about the stuff the banks already own. The inventory banks own but are not actively selling is not that large. It is the upcoming inventory from the delinquent borrowers that is the big, scary number. Millions of borrowers are not making their payments, and loan modification programs are not succeeding in resolving the the problem. Short sales are not working either. Foreclosure is the option everyone is trying to avoid, but it is exactly what is needed to get past this problem.
Laguna suggests starting by contacting a Realtor. Realtors have access to profiles and who owns the notes to houses.
"Sometimes the bank doesn't even know who would make the decision. You have to research that," he said.
"It's difficult to make an offer. The bank may say its Realtor has to be in charge. Then the Realtor says he hasn't got the listing yet."
After a foreclosure, there's a trustee sale, so all of the shadow inventory was for sale for at least a moment during the process. One of the consequences of shadow inventory is a high number of vacancies, which are targets for squatters and vandals.
"I don't know if vacancies are depreciating the market, because comparables use sold properties, but vandalized homes may make a neighboring conventional homes harder to sell," Laguna said. "Cities are being tougher and tougher on those properties, but there's just so many of them."
Whether property has been released for sale, the title holder of any property is responsible for basic maintenance. For example, pool water may not be green; lawns may not be brown.
Laguna said the city will impose a deadline for signs of neglect to be remedied.
After the deadline, there may be $1,000-a-day fine until the home is in compliance. If that fine is unpaid, the city may put a lien on the title. That property then cannot be sold until the lien is cleared.
"Every city is different.
Some (lien blemishes) follow the house; some follow the previous owners."
Laguna says buyers should not let the possibility of shadow inventory's release cause reluctance.
"Is it a good time to buy, with all this property about to come on the market? I think so. If I could afford it, I would buy. Who's to say how they're going to release it? The deals you can get on some of those properties now is incredible, and the interest rate!"
It's a good time to buy if you believe a cartel of lending interests that control the sale of millions of properties can hold price levels above what people can realistically afford and divest themselves of all their inventory. If you believe the banking cartel can do this, then we are near enough to the bottom that buying now doesn't hurt. On a nominal basis, it may not, but on an inflation-adjusted basis, it is not great planning to tie up money in an asset that treads water for 10 years while inflation ravages the buying power of the currency.
For the banking cartel to maintain the balance they are looking for between liquidation rates and asset prices, price volatility will be very low during the purging process. The inventory will prevent prices from going up. The real challenge for the asset managers is to dispose of their properties without pushing prices lower. This may be possible in some markets where inventory problems are smaller, but in over-debted California, the inventory and associated debt purge may take much longer.
If bank asset managers are successful, prices will probably drift slightly lower over a multi-year period while the debt winds down. Long periods of low volatility takes many appreciation traders out of the game. Why buy when prices are expensive and when prices are not going up? it takes a lot of faith.
A subprime casualty in Irvine
Many people who took out subprime loans did so because it was an easier process with less paperwork and less need for accuracy on the paperwork you had to fill out. We had less subprime in Irvine, mostly because the borrowers had higher FICO scores and became classified alt-a.
This property was purchased on 12/22/2004 for $610,000. The owner used a $488,000 first mortgage, a $122,000 second mortgage, and a $0 down payment courtesy of New Century Mortgage Corporation.
On 8/2/2005, only eight months after putting zero down on the property, the owners were given a $125,000 HELOC. There is a chance this simply replaced the second mortgage, and they didn't spend the extra $125,000 they were given for nothing. However…
On 2/13/2007 they refinanced with a $588,000 first mortgage and obtained a $73,500 HELOC.
Total property debt was $661,500.
Total mortgage equity withdrawal was $51,500. Not a huge take, but considering they put nothing into the property, $51,500 in free money is not too bad.
She quit paying the mortgage in 2009.
Foreclosure Record
Recording Date: 02/03/2010
Document Type: Notice of Sale
The sale notice was in February, but the house did not sell until 11/12/2010 when the bank took the property back for $642,500.
I recently wrote that mortgage interest rates hit a five-month high. The real story isn't that interest rates moved higher, it is that mortgage interest rates went up quickly, and the reasons for that move are not centered in real estate.
Rates have been going down along with mortgage demand and home sales since the expiration of the tax credits in the spring of 2010.
Unfortunately, the rise in interest rates is not being caused by a resurging economy paying a premium for capital. The economy is still in the doldrums, home sales are way down, the banks own a lot of homes, and they will ultimately foreclose on many more. Rising mortgage interest rates will hurt pricing and sales volumes. The weight of inventory will push prices lower.
Has the bond market finally turned? And if so, what is this going to mean for you and your money?
Here's the answer to the first question: It sure looks like it.
The interest rate on five-year Treasury bonds has nearly doubled to 1.9%. The rate on the 10-year has rocketed to 3.2% from 2.4%. The 30-year bond is now paying 4.4%—nearly a full percentage point more than it was at the lows a few months ago. (Bonds work like a seesaw: The yields rise when the price falls.)
At the peak of the boom, about six weeks ago, investors in bond funds lined up to buy Wal-Mart Stores bonds in the hopes of earning 5% a year for 30 years. How's that working out? So far they have already seen their first year's interest effectively wiped out, as the bonds have slumped about 5% in price since the sale.
The usual caveats about forecasts—namely, that nothing in this business is certain—apply. Nonetheless, this looks ominously like the end of the bond mania.
Bonds were a bubble but for a different cause. The real estate bubble was formed because people drove up prices chasing appreciation. The bond bubble was formed because people drove up prices chasing capital protection and cashflow. To much money chasing too few opportunities bids up prices to unsustainable heights.
The reasons are partly positive and partly negative.
The positive: Fears of deflation, and a second economic downturn, have receded. As a result, it isn't just that the yields on regular bonds have risen. So, too, have the yields on inflation-protected government bonds.
But then there are negative reasons. Bonds looked seriously overvalued. Yields were desperately low. They offered little reward and a lot of risk. Meanwhile, the governance and finances of the U.S. government are deteriorating before our eyes.
No wonder bond prices have tumbled, sending yields much higher.
The asset overvaluation of a bubble creates the circumstances where there is little potential reward for a great deal of risk. It is an imbalance that needs to be corrected — usually by a violent change in price. Quantitative easing and the market's perception of government policy could serve as a catalyst to the price correction needed in the bond market.
The rumblings began in August, when Federal Reserve Chairman Ben Bernanke first unveiled his plans to invent yet more dollars and pump them into the economy. The market really began to sell off a month ago, when the elections left a bitterly dividend government.
But President Obama's tax Munich this week, apparently, has been the final straw. Economists at Macroeconomic Advisers estimate that the tax cuts and minor spending increases will add another $900 billion to the deficit in two years' time. But that's just the start. The real issue is the signal it sends about longer-term fiscal discipline.
So much for all those concerns about deficits.
At some point, without fiscal discipline, the world will simply lose confidence in U.S. government finances. They will demand higher yields as more compensation for risk, and for the dangers of inflation.
Are we at that point? Maybe not completely. But the movement in bond prices tells you people are worried.
Ben Bernanke is trying to devalue the dollar and generate inflation. His success will be presaged by a selloff in the bond market as investors come to believe Bernanke will succeed in printing enough money to create inflation. Right now deflation is still a problem.
So what does this mean for your finances?
We've seen so many bear markets in the past decade. But Treasury bonds are much more dangerous on the way down than other assets. When the dot-com bubble burst, blue chips like Johnson & Johnson and Bank of America carried on pretty much unscathed. When the real-estate market crashed, bull markets continued in the likes of Apple and gold and ExxonMobil. When Lehman Brothers imploded, at least Treasury bonds rose.
But if the Treasury market loses control, almost nothing will be safe.
Here's how the repercussions will be felt:
1. The wealth effect. Americans have at least $3 trillion invested in bond funds, according to the Investment Company Institute. A lot of that is in paper backed by one issuer: the U.S. Treasury. Investors have been assured that bonds are "safer" than stocks, but this is a half-truth at best. They are vulnerable to inflation, and to rises in interest rates. A 30-year bond paying $50 in coupons each year is worth $1,000 in an environment where long-term interest rates are 5%. If those long-term rates rise just to 6%, it's worth only $860—and the owner is down 14%. If those rates rise to 7%, that bond's value falls to $750—a 25% loss. Bonds are owned especially by older investors, who in turn are more dependent on their investments for income. A sustained slump can seriously hurt spending and confidence.
2. Corporate bonds. When Treasurys sell off, these get hit too. That's because they are priced in relation to Treasurys. When Treasury yields were down on the floor, brokers and advisers were able to argue corporate bonds were "cheap" because their yields were higher than Treasurys. (The gap is called the "spread.") But once the yields on Treasurys rise, those on corporate bonds have to follow suit just to maintain the same spread.
3. Real estate. Mortgage rates are effectively set relative to the yields on 10-year Treasury bonds. And the turmoil in the bond market has just sent those mortgage rates jumping to six-month highs. According to Bankrate.com, you'll now pay 4.91% on a typical 30-year conforming loan—compared to rates of just 4.4% a few weeks ago. Sure, 4.91% is still pretty low—if it stays there. But it's still very unwelcome news for the flattened housing market.
4. Corporate profits. The bond boom was terrific news for companies. They could take advantage of it to issue long-term paper at very low rates. They could often invest that money at higher rates via expansion—typically overseas, such as in Asia—or even just by buying back their stock. That boosted profits and cut taxes. But if the bond market has now peaked, that game is going to be over. Companies that need cash in the future are going to find it harder to come by—and they will have to pay more for it.
5. Everything else. When Treasury yields rise, that makes every other asset seem less valuable. There are two reasons for this. The first is that when Treasurys offer a higher yield, the yield on other assets needs to rise to compete. The second is that economists and investment analysts use Treasury rates—typically the rate on 10-year bonds—as the basis for many long-term calculations. All other things being equal, higher rates make future profits less valuable in today's money.
Maybe bonds will recover. This business is full of uncertainties. But investors need to understand that there is now a serious danger that the events of the last month are the start of a long-term slump in Treasurys. That makes this investment environment more dangerous than many people seem to realize. Look out.
The macroeconomic issues that move the bond market can have significant impact on mortgage interest rates. In markets with elevated prices dependant upon borrowers maximizing their loans (see Orange County), rising interest rates will lower prices because higher interest rates make for smaller loan balances.
So what do you think will happen? Have we seen the peak of the bond market? Have we seen the bottom of interest rates?
Loan Modification: Fail!
The owners of today's featured property paid $460,000 on 11/20/2003. The mortgage data is unclear as my records show two mortgages for $68,900 which would leave a huge down payment.
On 3/27/2007 these owners obtained a HELOC for $242,798.
Somewhere after that, these people defaulted on some debt and restructured with a loan modification. The strange part is that IndyMac Bank is showing up as the loan originator on 12/28/2009, well after IndyMac was shut down. The loan was a $455,000 first mortgage at 1%. The owners went into default shortly thereafter.
Foreclosure Record
Recording Date: 10/07/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 05/06/2010
Document Type: Notice of Sale
The house was purchased by OneWest Bank on 11/3/2010 for $473,681.
According to the listing agent, this listing is a bank owned (foreclosed) property.
What a lovely home in Glenneyre at Lanes End. This is a 2 bedroom + an office, den or gym. All bedrooms are upstairs with 2 full bathrooms. The property is in EXCELLENT condition, including appliances. You enter through a white picket gate, it's quite charming. The downstairs has an open floor plan. Gorgeous parquet floors throughout the downstairs. The living room and dining area both have a view of the fireplace, as does the kitchen. The kitchen has a garden window over the sink, looking toward the yard. There is also a guest bathroom downstairs as well a direct garage access. This home will sell quickly!!
Is shadow inventory all in your head? Is it real? Are there really debt zombies roaming the shopping malls spending the money they should be putting toward their mortgage?
Home ownership in California means you gorge on HELOCs when times are good, and squat in luxury when your creditors cut you off. Its a great system for Californians. They get to spend as they please and pass the bills off to the rest of America in taxpayer bailouts. I see no reason to believe it will not happen again soon.
By Pat Regnier, assistant managing editor — December 7, 2010: 4:10 PM ET
ORANGE COUNTY, Calif. (MONEY Magazine) — Joshua and Irene Vecchione are cleaning the dinner dishes one evening in October when Joshua's cellphone rings. It's Rhea from the Chase collections department, and she wants to know if he has $123,000 today. That's what it will take to get the Vecchiones current on their mortgage.
Rhea is a new caller, but Joshua has been talking with Chase reps a lot since February 2009, when he and Irene stopped making the $8,000 monthly payment on their five-bedroom spread in Ladera Ranch, Calif., an upscale development in south Orange County.
After a few months, they were allowed into a trial mortgage-modification program, which let them pay less than half as much and kept Joshua on the phone as Chase requested more and more documents.
In July, though, the bank decided the couple didn't merit a permanent "mod." The Vecchiones, who own the toy store in Ladera, began negotiating with Chase to do a short sale, in which the lender allows the debtor to sell for less than what's owed and walk away. So what Rhea says troubles Joshua: They're still listed in Chase's system as an active foreclosure.
"How am I in foreclosure?" he asks after hanging up. "I'm not in foreclosure."
I think it was because you quit paying your mortgage almost two years ago. I'm not sure, but I think that is pre-requisite for the bank to call a foreclosure sale, or at least it is supposed to be. So, if you haven't been paying your mortgage, there might just be a chance that you are in foreclosure.
In a way, many people who don't get their loan modifications should thank the banks for accelerating their default. Some of these people might have held on for years making their payments if the bank had not induced them to default by holding out the possibility of a lower mortgage payment. Without question, the banks created many strategic defaults by the incentives they put into the system.
A few weeks after that call, the Vecchiones get another one, this time approving the short sale. They bought it for more than $1.1 million in 2006 — the height of the bubble — with a high-rate, interest-only mortgage. Paying it meant staycations and other cuts, but they figured they could refinance in a couple of years, as the house grew in value.
You know how the story ends, but in 2006 few people (especially in the O.C.) had any idea what was coming, and lenders were hardly waving folks away from the cliff.
There's a spot in the backyard where Joshua once planned to add a little apartment for his parents. Now he figures his family of five will move in with them. He's sad not to have one last holiday season in the house. But if all goes as planned, the entire process, from first missed payment to renting the U-Haul, will have taken 22 months.
Since these owners obtained the beneficial use of a house that was supposed to cost them $8,000 a month, does anyone else like the idea of taxing these people on the $176,000 in squatter benefits?
The Long Goodbye
There are stories like the Vecchiones' slowly unfolding all around the culs-de-sac of Ladera Ranch — and in prestigious zip codes across America. The foreclosure crisis has hit lower-income communities the hardest, but it has touched every slice of the market, and resolving it may well be harder in places where homes are too expensive to attract investors with ready cash.
The reason this crisis hit the lower income communities first (so far worst, but really only the first) is because the loans given to the lower income communities reset or recast first. The Option ARMs and interest-only loans given to Alt-A and prime customers are resetting and recasting now. Many of those borrowers have already accelerated their defaults and are squatting in shadow inventory.
The shadow inventory problem will be much harder to resolve in prime areas where prices are far too high because there are not enough buyers able to pay the inflated prices to absorb the inventory. Prices will have to come down on mid to high priced homes or the banks are going to own them for a very long time.
Naperville, a tony Chicago suburb, has more than 230 homes valued at over $300,000 in danger of seizure, according to RealtyTrac, a foreclosure data provider. Monmouth County, a New Jersey Shore area that boomed in the early 2000s, has 462 over $400,000.
Ladera, an unincorporated community of about 25,000, is conspicuously affluent — it's home to Tamra of The Real Housewives of Orange County. The schools are strong, the surrounding chaparral foothills pretty. Good jobs are to be had in nearby Irvine. In short, this is a place a lot of folks would consider a slice of heaven, which is why MONEY began following what was going on here two years ago, as the dream of the house that made you rich began crumbling.
Now heaven has turned into limbo, where defaulters may live for a year or more with a giant mortgage they can't fully pay. Not counting homes already in the foreclosure process, about one in 10 Ladera mortgages is at least 30 days late, according to LPS Applied Analytics. And houses in the foreclosure process have been delinquent an average of 16 months, up from seven in 2008.
Ten percent of Ladera Ranch loan owners are not making their payments. That is a lot of distressed mortgages. If that many houses have to go through the foreclosure meat grinder, prices will get pushed much lower.
The national figures are almost as ugly. And what they show is that our collective real estate hangover is far from over. And limbo will start to last even longer as the "robo-signing" scandal raises questions about the integrity of the foreclosure process.
To judge from recent stories about poorly (if not fraudulently) documented seizures, you would think servicers are snatching up houses quickly. In fact, rushed doc signings and long delinquencies are two sides of the same problem: During the boom, lenders tripped over themselves to create millions more ultimately unsustainable mortgages than they can now unwind.
Yet for the housing market to return to health, there needs to be resolution for these zombie loans that won't ever be paid in full and won't quite die either. Until they can be eliminated through short sales, foreclosures, and permanent modifications, the zombies will keep home values from recovering and suck momentum from the economy. They're not departing soon.
As Christopher Thornberg of Beacon Economics in Los Angeles puts it, "This is going to bleed on for years. People will wander in and out of trouble."
On MONEY's first day back in Ladera Ranch this summer, what jumps out is how nice the place still looks — no air of depression here. Although it's a bubble-era town, having sprung up in 1999 from what had been a real ranch, Ladera isn't like some of the foreclosure disaster zones you've heard about — the outskirts of Phoenix, say, or Riverside County, Calif., just over the Santa Anas.
Ladera wasn't a magnet for "drive till you qualify" buyers who might have been better advised to rent. The average credit score on a loan here was a solid 734.
Today 4.4% of homes in Ladera with mortgages are in some stage of foreclosure, compared with less than 3% for Orange County. That's given the place a bad rap locally, even though the vast majority of Laderans are, of course, paying their mortgages.
"What's annoying is the perception that Ladera has a bigger group of people who were irresponsible," says Devon Hocker, a real estate agent and publisher of a local magazine.
The facts are what they are. With a 10% delinquency rate and a 4.4% foreclosure rate, Ladera Ranch is above the average for Orange County and above the average for the nation. How is that possible with a large concentration of high wage earners?
Houses were wired for broadband and set up for home offices, she says, attracting entrepreneurs who had high incomes, at least in the boom. (Many were in real estate; a local joke goes that when you're pulled over on the main drag of Antonio Parkway, the deputy asks for your registration and broker's license.)
Because Ladera is so young, owners are more likely to have paid nosebleed prices and to have financed with one of the easy-pay mortgages that swept California after 2005. If someone told you he had a fixed-rate loan, quips Hocker, you knew he had just arrived from the Midwest.
Being from the Midwest, I never considered any kind of financing other than a fixed-rate mortgage. The fact that houses were not affordable using a fixed-rate mortgage is what told me there was a housing bubble early on.
The exotic loans also attracted flippers, who set the market's torrid pace. Troy Lowder says he went through four houses in Ladera; a friend and family members did the same, buying as tracts were first developed. "We all went from neighborhood to neighborhood, Phase 1 to Phase 1," he says. Lowder made more than $200,000 on one deal.
The flood of easy money shows on local streets. Planners designed neighborhoods to appeal to different psychological profiles: One was for green types, another for the "achievement-oriented." Landscaped trails and pocket parks dot the area — amenities that developers skimp on in less frenzied markets.
"You won't see another Ladera Ranch for a good long time," says Brooke Warrick of American Lives, which did market research for the development.
The area's desirability, and the potential inventory that is still in limbo, have produced an odd dynamic. While the median home price fell from $780,000 in 2007 to $530,000 in 2009, according to the service DQNews, you can't waltz into Ladera and snap up a quick bargain.
"Many houses are on backup offer," says a man out with his agent on a sunny afternoon. (He asked not to be named.)
Big deal. Many houses are in backup offers because it is a ridiculously priced short sale that the bank has taken more than a year to approve because the borrower is hiding money from the second mortgage holder or the borrower will not agree to pay up.
This appearance of vitality masks a deeper problem, and not only in Ladera. Simply put, housing isn't bought and sold now in anything resembling a normal market. On the one hand, the federal government has worked overtime to keep houses attractive, with super-low interest rates, higher conforming loan limits, and, until recently, a homebuyer's tax credit. Those moves have real costs, and low rates hurt savers even as they help owners.
Meanwhile, foreclosure moratoriums, mod programs, and bank delays have kept homes off the market, to the detriment of would-be buyers.
"They've done an amazing job of restricting supply and stimulating demand," says Sean O'Toole of ForeclosureRadar, which sells data on California foreclosures to investors.
Up to this point, says Brookings Institution economist Karen Dynan, "there was an argument that delaying foreclosure — even if you couldn't prevent it — was valuable, because the economy couldn't have withstood the consequences" of more homes dumped onto the market.
That is a great argument if your a banker or a loan owner. If you are a renter or a buyer, that argument sucks.
But the zombies remain, threatening a second leg down in prices should the pace of foreclosures speed up. Recent numbers suggest this deflation was already starting, says housing analyst Ivy Zelman of Zelman & Associates. But with the robo-signing scandal, she adds, it's unclear what happens next.
How Many Zombies Are Still Out There?
Estimating the number of zombies isn't a simple matter. Rick Sharga of RealtyTrac says mortgage servicers are delaying filing notices of default, the first public record of a problem.
An October report from Amherst Securities takes internal industry data on all loans with late payments, as well as loans now current that were once delinquent, and applies a formula that calculates the probability that those loans will ultimately fail.
The rough national count of zombie mortgages: 7 million. Considering that existing homes sell at a rate of 5 million a year — and that a six-month inventory is a sign of a healthy market — that's a big backlog.
It might be bigger. There are 2.6 million on-time loans where the borrowers are deeply underwater — that is, they owe a lot more than the house is worth. All told, about a quarter of mortgages in the U.S., and a third in California, are underwater, according to Core Logic, and Ladera residents are quite aware of the incentives to try to get out of such loans by defaulting to seek a modification or short sale.
I am curious if lenders thought the word would not get out.
When MONEY met Stuart and Judy Manley in 2008, they were trying to sell their Ladera town-house for $430,000 and trade up; they couldn't, and homes near theirs are now selling in the $200,000s.
They've seen neighbors receive modifications that drastically cut their rates. The Manleys' trouble is that they aren't in trouble; they're making payments on a fixed-rate loan.
"When you call and ask for assistance or a modification, they laugh and say, 'You don't call us, we call you,' " says Judy.
The Manleys say they won't consider it, but the social stigma of default may be fading. David Averell, a mortgage broker, says that a neighbor who stopped paying "is the pop star of the neighborhood. Everybody wants to know how to be that guy."
What's the Holdup?
Why the process of unwinding bad loans has moved so slowly is an even more complicated question than how many zombies exist — as complicated, in fact, as the mortgages themselves, which were often created by one lender, sold off to investors, and then passed around among different servicers. (Chase, for example, wasn't the Vecchiones' original lender). The most obvious explanation is that the industry is simply overwhelmed. "Foreclosure activity is six times the normal level," says Sharga.
That leads to confusion; Patti Arnold, an escrow officer in Orange County, just had a short sale fall through because the bank demanded the owner get a power of attorney from her deceased spouse. Second and third mortgages add to the mess. Lien holders have competing interests, and that gums up short sales as Lender A haggles with Lender B over how much cash the latter gets, says Arnold.
Some market watchers believe banks have incentives to take their time.
"Because of the drop in home prices, lenders aren't necessarily motivated to rush properties onto the market," says Alan White, an expert on mortgage law at Valparaiso University.
A flood of inventory that weakened prices could motivate more borrowers to default. There's even fear for the banking system as a whole. Although most mortgages are owned or insured by Fannie Mae or Freddie Mac or have been sliced up into investment pools, trillions of dollars of whole loans sit on banks' books, many of them second mortgages, says Daniel Alpert of the investment bank Westwood Capital, which buys and modifies distressed loans
These second mortgages are difficult to pass off to the US taxpayer. The denial over the fate of these loans keeps our banking system in need of amend-extend-pretend.
The modification of a loan's principal or the sale of the house whether in a short sale or after foreclosure — forces the bank to write off its loss. Alpert thinks banks are "slow-walking" the process, hoping the market rebounds.
Amherst's Laurie Goodman counters that investors' losses get worse the longer a default drags on. (In fact, Fannie Mae in September told servicers to speed things up.) Goodman blames the slog more on modification programs which, as the Vecchiones have learned, often merely delay the loss of a house.
In the government modification program called HAMP (which the Vecchiones didn't qualify for because of their jumbo loan), about half the trial participants drop out. And a huge percentage of modified loans go back into delinquency.
Not that getting a mod is easy to begin with. Stella Matadama from the Consumer Credit Counseling Service of Orange County has personally worked on 95 modifications during the past year. She's succeeded with 18. In all, fewer than 470,000 of the 1.3 million trial modifications done under HAMP have led to permanent relief.
Loan modification programs are a proven failure, and they will continue to be.
Life Underwater
Orange County has long been a bastion of conservative values; the idea of homeowners not paying and then staying put rankles. Larry Roberts, a local blogger and real estate investor better known as IrvineRenter, calls them "squatters."
One hot question is how much of this is "strategic" defaulting — that is, how many people who have stopped paying have simply decided they will no longer pour money into a bad investment? Californians talk about short sellers with BMWs and/or conspicuous surgical enhancements. (A tour of Ladera short-sale listings confirms the first part of the story.)
But the financial picture of defaulters usually isn't rosy. "There's a strategic element in most defaults, and few defaults are purely strategic," says analyst Goodman. "You have your hours cut back at work or go through a divorce and re-evaluate … You don't just say, 'Oh, it's three o'clock, time to default.' "
Not surprisingly, people who approach real estate as an investment show the most sang-froid about defaulting. Troy Lowder, the flipper, lost his last house in Ladera, purchased in 2006 with a mortgage that didn't even require paying the interest due every month.
Option ARMs were ideal loan for flippers. The low payments made holding costs negligible, and the large financing amounts made any flip within reach.
He had planned to sell at a profit in a couple of years, but comparable houses were soon going for $400,000 less than he had paid. And since both Lowder and his wife worked in real estate, less money was coming in.
"It sucks. We lost everything," says Lowder. But he says he'd play the game again in another boom.
Rik Hendrix's story is probably more typical. When he bought his house in 2008, he says, he was earning a six-figure salary as an assistant service manager at an RV dealership. But his wife got a better job, so he decided to go back to mechanic work to spend more time with his kids. Now he's going through a divorce and taking home half what he did as a supervisor.
"We're not selling as many accessories, and that's where you make your money," he says.
All this made his $5,000 monthly housing nut unsustainable. He finished a short sale in late October and says he was able to pay off a lot of credit card debt while not paying his mortgage.
An assistant manager at an RV dealership had a $5,000 monthly nut. No wonder the housing market is in trouble.
The Vecchiones, too, took an income hit. Their store is a Ladera fixture, but the crash squeezed local wallets. "The average person spent $40 per birthday gift, and that went down to $15 or $20," says Joshua.
He claims Chase wouldn't put them in a trial modification until he missed a payment; Chase says that's not policy.
In any case, the couple celebrated when they made their first $3,260 trial modification payment, thinking they were on their way to saving their house. But a trial merely slows the foreclosure machinery while the bank makes a decision.
Owners typically still owe the balance they aren't paying, plus additional late charges if they aren't approved for permanent terms. The Vecchiones were first turned down for not enough income, let back in, then rejected for not fitting Chase's financial models, decisions with which Joshua disagrees. Regardless, by that point they were even deeper in the hole.
Anyone who thinks the banks are doing them a favor with a loan modification hasn't read the terms carefully.
The common thread in these stories: Once homeowners are underwater, it doesn't take much to set them on the path toward losing their house, especially if they stretched to buy. That's what has made the foreclosure crisis into such a Gordian knot. The more defaults, the further prices fall; the further prices fall, the more people default.
Getting Out From Under
Do we have to muddle through several more years of foreclosures and a semi-functioning housing market, or can the situation be improved? That's a tough question; a lot of conflicting interests would require resolution. If you didn't overreach for your mortgage, it stings a bit when your neighbor gets help or stops paying on the house he couldn't afford.
Then again, your property's value will go down if the bank forecloses on that neighbor. If you're a renter who wants to buy, a wave of foreclosures that drives down prices sounds like just the ticket — but only if that wave doesn't roil the economy enough to cost you your job.
Do any renters reading this story believe that their job was saved by the government subsidies that keep house prices out of reach?
So Congress and the Obama administration have tried to walk a fine line. The White House has resisted calls for a national foreclosure moratorium, and HAMP has proved to be anything but a radical homeowner bailout.
Under HAMP, mortgage servicers get a subsidy for modifying a loan, but the vast majority of those modifications reduce only monthly payments, not the principal, meaning homeowners remain underwater.
To really slice into the inventory that will eventually end up in foreclosure, argues Amherst's Goodman, we'll need a program that pushes servicers to reduce the principal owed for those who could afford a mortgage closer to current market values, perhaps while forcing them to give up some future appreciation. This would still leave lots of foreclosures, but it could more quickly sort who can and who can't save their home.
Another approach: Ease struggling homeowners out of their loans altogether, so they can make a fresh start. Investment banker Alpert and the economist Dean Baker have separately proposed giving defaulters a temporary right to rent their homes at market rates. Homeowners would have less incentive to prolong the foreclosure process, but they would still lose their investment and their good credit. And people in houses way beyond their means couldn't afford the rent.
Banks and mortgage investors would bear the direct costs of such efforts — boo-hoo — but here again, that doesn't mean you'll pay nothing. As Brookings' Dynan notes, the banking system remains fragile: Want another bailout?
And economist Bill Emmons of the St. Louis Fed thinks that forced write-downs would make lending unpredictable, which in turn could make mortgages costlier. In any case, given the climate in Washington, the chances for any major federal legislation seem slim. It's more likely that a push for write-downs will come from state attorneys general pursuing the robo-signing scandal. "The AGs are out for blood," says analyst Zelman.
So the ultimate workout remains unclear, but two things are certain. First, says Dynan, for the economy to get back on solid footing, households have to unwind much of the leverage they've taken on, and mortgage defaults are an inevitable part of that. (note the impact on disposable income in our consumer-driven economy when the ATM is turned off.)
The question is whether families who misjudged the real estate market (the majority of whom are not as affluent as folks in Ladera) must bear the brunt of the cost of this deleveraging, or if more of the burden can be placed on the lenders that inflated the bubble — and that have, as noted, already enjoyed a bailout.
Second, the status quo has costs, even for those who've stayed in homes they can't afford. It's stressful: Before her short sale was approved, Irene Vecchione feared her house would be foreclosed at any moment and visited the courthouse-steps auction in Santa Ana, where scruffy guys in wraparound shades snap up houses, to see how her dream might end.
And every month that the Vecchiones, and millions like them, don't pay in full is another month they don't rebuild their credit. Finally, when a modification doesn't work out, a homeowner has simply thrown good money after bad. "We paid what they told us to pay," says Joshua. "But we're in the same position as people who just didn't bother."
A responsible borrower goes Ponzi
The lure of free money is difficult to resist. Even those who demonstrated that they could borrow responsibly later blew up after they spent a pile of free money and couldn't pay it back. HELOC money is like heroin or cocaine: don't try it because you might like it, and once your hooked, it ends badly.
This property was purchased on 9/26/2000 for $452,000. The owner used a $332,000 first mortgage and a $120,000 down payment.
On 1/28/2002 she refinanced with a $322,000 first mortgage.
On 1/18/2002 she refinanced with a $331,200 first mortgage. Through her first two years of ownership she at least broke even on her debt.
On 4/11/2003 she refinanced with a $322,500 first mortgage and a $50,000 stand-alone second. It was the beginning of the end.
On 2/27/2006 she refinanced with a $450,000 first mortgage.
On 3/13/2007 she refinanced with a $450,000 first mortgage.
On 4/7/2008 she borrowed $70,000 from a friend who was just wiped out in the foreclosure.
Total property debt was $520,000.
Total mortgage equity withdrawal was $198,000.
The lender moved quickly once they issued the NOD.
Foreclosure Record
Recording Date: 08/25/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 05/24/2010
Document Type: Notice of Default
The property was sold at auction for $641,000 on 9/28/2010. The flipper is trying to make almost $160,000 on the deal. Do you think the market will give it to them?
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Great 5 bedroom PLUS bonus room model… Could be 6 bedrooms as bonus room has a closet. Interior tract location with livingroom with vaulted ceilings, 1 bedroom downstairs, open kitchen, familyroom w/fireplace, plus den downstairs, spiral staircase. Huge master with sitting area with fireplace has vaulted ceilings also and large bath, walk-in closet. All bedrooms are good sized. BRAND NEW roof just installed. 3 car garage, great bonus room, back yard has firepit, in ground spa. Park located within tract. This beautiful familyhome is in a great area with an excellent school district… This is NOT a short sale.
Denial and the desire to be rescued runs deep in our culture. From our religious traditions to popular television, everyone has a sob story and some reason why they need to be relieved of the responsibility for their actions. Back in March of 2008, I wrote about Bailouts and False Hopes:
One of the more interesting phenomenon observed during the bubble was the perpetuation of denial with rumors of homeowner bailouts. Many homeowners held out hope that if they could just keep current on their mortgage long enough, the government would come to their rescue in the form of a mandated bailout program. Part of this fantasy was not just that people could keep their homes, but that they could keep living their lifestyle as they did during the bubble. What few seemed to realize was any government bailout program would be designed to benefit the lenders by keeping borrowers in a perpetual state of indentured servitude. With all their money going toward debt service payments, little was going to be left over to live a life.
All of these plans had benefits and drawbacks. One of the first problems was to clearly define who should be “bailed out.” The thought of bailing out speculators was not palatable to anyone except perhaps the speculators themselves, but with regular families behaving like speculators, separating the wheat from the chaff was not an easy task. If a family exaggerated their income to obtain more house than they could afford in hopes of capturing appreciation, did they deserve a bailout? The credit crisis that popped the Great Housing Bubble was one of solvency, and there was no way to effectively restructure payments when a borrower could not afford to pay the interest on the debt, and this was a very common circumstance. None of the bailout programs did much for those with stated-income (liar) loans, negative amortization loans, and others who are unable to make the payments, and since this was a significant portion of the housing inventory, none of these plans had any real hope of stopping the fall of prices in the housing market.
It has been nearly three years since I wrote that, and every few months, there is another loan modification program, proposed bailout, or some other news issue that gives debtors false hope. The latest has been the robo-signer controversy.
So far, politicians on the Left have used this issue to try to pander for votes with populist appeals of innocent homeowner versus the evil banking machine. The banks were happy to go along if it made a few loan owners make a few more payments in the false hope that may may get their debts forgiven. And as we will see today, attorneys have already found a way to exploit the issue to make a few dollars on the false hope of the masses.
by CHRISTINE RICCIARDI — Monday, November 29th, 2010, 1:35 pm
Fannie Mae and Freddie Mac gave real estate agents the green light to resume selling foreclosed homes, after suspending the process as the robo-signing debacle unfolded the past two months.
Freddie told agents in a memo last week to "resume all normal sales activity," as the government-sponsored enterprise will "resume marketing, sales and disposing of assets previously placed 'on hold.'"
Fannie Mae told its real estate agents "to proceed with scheduling and holding the closings" of sales of homes with mortgages owned or backed by the GSE.
The green light is unambiguous. No special conditions or circumstances allowing delay. Foreclose as quickly as possible.
The mortgage-finance giants initially enacted a moratorium on sales of foreclosed properties because servicers were allegedly signing affidavits either without prior knowledge of the case or without a notary present — a phenomenon that became known as robo-signing.
Many other lenders, includingAlly Financial, JPMorgan Chase and Bank of America, issued foreclosure moratoriums that have since been lifted.
Bank of America started refiling new affidavits Oct. 25. A spokesperson for JPMorgan Chase said they have not started refiling and will do so state-by-state. The process should take three to four months.
Ally Financial said it will move forward with a foreclosure in the 23 judicial states when it has reviewed and remediated the affidavit. Cook County, Ill., restarted foreclosure evictions two weeks ago.
Both Fannie Mae and Freddie Mac recently pulled their existing foreclosures cases from one Florida-based firm at the center of the robo-signing scandal, The Law Offices of David J. Stern.
David Stern already made a fortune, and the pullout by the GSEs is more for press relations than anything else. As scandalous details emerge, this issue will re-appear now and again over the next few months, but with exception of the articles promising more false hope, this issue is behind us.
A foreclosures expert says that the national investigation into the robo-signing scandal, in which lenders blazed through thousands of foreclosure filings without reading them, is so far not yielding any results that would give people their homes back.
The definition of false hope: people are not getting their houses back, nor are they getting any principal reductions.
Rick Sharga, CEO of RealtyTrac, a foreclosure tracking firm, said the investigation by state attorneys general will likely result in fines against mortgage servicers and even some criminal prosecution. But the bottom line for homeowners who have lost their homes is the same.
"We've seen very little fallout in the way of forseclosures … being overturned," Sharga said. "There's not a single case where a home that has already sold has been overturned."
The 50 states and the District are participating in the investigation into illegally filed foreclosures.
Reporters have been scouring the nation looking for the victims of robo-signer, and so far, nothing. Sometimes people forget that the reason robo-signer is after these debtors is because the debtors are not making payments on the loan for the money they used to buy the house they are squatting in. Borrowers used the bank's money, and now that they can't pay the bank back, the bank wants to take the house purchased with the bank's money. That's how the system works.
Some look at a foreclosure and all they see is someone who borrowed money they didn't repay.
The homeowner is the bad guy, the bank is the victim.
It's more nuanced than that black-and-white view. Clearly, a foreclosure is a process against a borrower who did not repay the money they borrowed. If lenders didn't have ability to get their money back, there would be no lending. Whether these people are good or bad is beside the point. The borrower needs to either repay the money or give up the house pledged as security to the loan.
A foreclosure defense lawyer, however, sees it differently.
It isn't the way most people think it is in terms of "Oh, these people haven't paid their mortgage."
These people were sucked into a horrible deals buying ARMs that they never should have been able to put into.
I grow tired of this nonsense. Lenders Are More Culpable than Borrowers because lenders should only extend loans to those capable of repayment. The greater responsibility of lenders in this mess does not relieve borrowers of their responsibilities, nor does it entitle them to special rights not extended to them by law or by contract.
Why is it when someone wants to screw the banks, they justify it by making borrowers blameless and the lenders the epitome of evil?
Why?
Because the conscience was out of the deal.
Peter Tickten's firm is defending more than 3,000 foreclosures.
His goal?
Using things like lost paperwork and robo-signing to get a a mortgage wiped out so the homeowner never has to pay it back.
It doesn't happen often, but it does happen.
No, it doesn't happen ever.
As it turns out, however, the fees some of these lawyers are charging may send some homeowners seeking a defense from their defense lawyers.
Can you think of a worse example of preying on someone's false hope?
Because this lawyer has pioneered a new fee structure: 40% of any mortgage reduction he achieves.
Say you've got a 200,000 mortgage and it gets dismissed: you never have to pay it back.
The fee will be 40% of $200,000: $80,000.
Where does a consumer in foreclosure come up with $80,000?
Why, with a mortgage, of course.
OMG! Who is going to give the borrower this mortgage? Will the attorney lien the property and put the loan owner on a new payment plan? This attorney is trying to crowd out the lender and become the recipient of the borrowers home payment income stream.
And that leaves only one question.
How can a lawyer possibly justify a fee like this?
"If I do that in a case where you lose your leg and I get a million dollars for you, I get 40% of that.
So if I do the same thing in a case where I save you a million dollars on the mortgage on your home, I should be able to get the same amount."
Mr. Tickten said his fee is negotiable and he'd never foreclose on a homeowner to collect it.
But still it seems like when it comes to foreclosures, even when you win you lose.
He would never foreclose on a homeowner to collect? How nice of him. No, if you fail to pay him, he will put a judgement lien on the property — a lien that will be in first position after the mortgage is wiped out — and he can wait until the property sells. Most likely he won't need to wait that long because eventually the former loan owner will want to get access to their newfound equity, and in order to get a new loan, the judgment will need to be paid off first.
Should this owner be given his home?
The owner of today's featured property is a HELOC abuser. He could probably make the argument that he was "sucked in" by unscrupulous mortgage brokers to take out a loan he never should have been given.
Does that mean we should forgive his debt?
Should this house remain in the hands of someone who made a stupid financial mistake at the expense of a new owner buying under today's stricter terms?
Existing loan owners — particularly the stupid ones who over borrowed — are crowding out new buyers. Any of you looking to buy today have to pay higher prices than you should because banks are keeping loan owners and squatters in houses they can't afford. This inventory is being held off the market to screw you, and the higher price you will pay is going to pay the debts of someone who over-borrowed and couldn't afford their house.
This property was purchased on 5/13/1994 for $225,000. The owner used a $213,700 first mortgage and a $11,300 down payment.
On 12/20/1999 he refinanced with a $215,200 first mortgage.
On 2/13/2003 he refinanced with a $280,000 first mortgage.
On 10/1/2003 he refinanced with a $310,000 first mortgage.
On 1/18/2005 he obtained a $150,000 HELOC.
On 7/31/2006 he refinanced with a $417,000 first mortgage, and he got a $150,000 HELOC.
Total property debt is $567,000. He more than doubled his mortgage during the time he owned the property.
Total mortgage equity withdrawal is $353,300.
He recently received his NOD.
Foreclosure Record
Recording Date: 09/13/2010
Document Type: Notice of Default
Let's say this guy gets his loan balance forgiven due to the robo-signer problem. Would that be a good thing? Should borrowers like this be given a pass?
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Feels like a single family home!! — Largest floorplan in Las Palmas Community with private enclosed entry, 2 car-attached garage with storage, inside laundry and easy access to community parks, pools, tennis courts, and bike paths. This open floorplan has cathedral ceilings, spacious kitchen with plenty of counter space and serving bar into dining room, mirrored wall and fireplace in living room, dining room access to large patio with spanish pavers and built in bbq. Conveniently located near UC Irvine, Irvine business district, 405 fwy and John Wayne Airport. Enjoy the convenience of Irvine, award winning schools, and a 5 star lifestyle in Westpark!
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It's a good time to buy if you believe a cartel of lending interests that control the sale of millions of properties can hold price levels above what people can realistically afford and divest themselves of all their inventory. If you believe the banking cartel can do this, then we are near enough to the bottom that buying now doesn't hurt. On a nominal basis, it may not, but on an inflation-adjusted basis, it is not great planning to tie up money in an asset that treads water for 10 years while inflation ravages the buying power of the currency.
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