Firms are getting billions, but homeowners still in trouble

McClatchy Via Yahoo News ^ | Sun Oct 4, 2009 | Chris Adams, McClatchy Newspapers Chris Adams, Mcclatchy Newspapers

[underthestreetlite]

WASHINGTON — The federal government is engaged in a massive mortgage modification program that's on track to send billions in tax dollars to many of the very companies that judges or regulators have cited in recent years for abusive mortgage practices.

The firms, called mortgage servicers, have been cited for badgering, manipulating or lying to their customers; sticking them with bogus fees, or improperly foreclosing on them.

Mortgage servicers are the middlemen between homeowners and the investors that hold their mortgages, collecting homeowners' checks and disbursing payments for the mortgages, property tax and insurance. They're a necessary player for any modification.

The reliance on such companies points to an ironic paradox for federal regulators: Cleaning up the nation's financial crisis often rewards the firms that helped create the mess. Those Wall Street banks and mortgage servicing companies argue that they're best positioned to repair the damage they've helped cause. In the case of the mortgage program, the firms getting the taxpayers' money are, after all, the firms that control the troubled mortgages.

To make matters worse, the Government Accountability Office , Congress' watchdog, has said that the Treasury Department hasn't done enough to oversee the companies participating in what's known as the Home Affordable Modification Program, which emerged from the bank bailout bill Congress passed last fall.

[dennisw]

In Florida the banks were working with investors. People were rolling over houses in a matter of months. Some homes appreciated 20% from contract to closing. If you moved here and wanted a home you had to make an offer immediately. Because people were literally lined up behind you to make offers. Forget renting an apartment because they are all full.

What were the years when this was going on and when was the peak? I would say the peak was summer 2005. So that makes 4 years of decline

Banks were making a killing and encouraged the activities.

The homes stopped appreciating and all the investors stopped buying. People who owned 5-6 homes for investments simply walked away. That was the first round.

They walked away and what? They were never prosecuted but did they have to declare bankruptcy? I'll bet many avoided that and kept all ill gotten gains

[driftdiver]

“One more thing, if people can’t make their payments because of their own irresponsible behavior, they should lose their homes”

Is losing your job irresponsible? Why should your opinion be considered on a private business transaction of which you are not a party? Not everyone in this situation is there because they were irresponsible. Perhaps you haven’t noticed the unemployment rate recently.

“I always said that this program would help a few deserving people, but it won’t be enough and the cost of doing that will be too high.”

What cost? All they are doing in most cases is renegotiating the contracts. They are taking the amount the person is behind and adding it to the back of the loan. All fees, taxes, interest, and penalties are in there.

Other than the cost of a bunch of govt employees acting like they are doing something the only cost is to the bank and its investors.

But lets consider the costs of foreclosure. A foreclosed home will bring in 60-70% of any other home. Of course there are so many foreclosures they drive the rest of the home prices down. So the house sits empty for 6 months. Meanwhile its not maintained and becomes an eyesore. Then criminals move in and start stealing stuff. Of course the cops don’t care because its bank owned.

So now the value is down even more. So how does foreclosing save money or provide a bigger return for the bank?

[driftdiver]

“They walked away and what? They were never prosecuted but did they have to declare bankruptcy? I’ll bet many avoided that and kept all ill gotten gains “

They walked away, some declared bankruptcy but I know several that did not.

They didn’t really have any ill gotten gains. All the “money” was in the house they walked away from.

Another case of a guy who owned his home outright. He borrowed $750k against it, built a new house with the cash. Walked away from the first home and into the second.

[dennisw]

I have read plenty of stories of people who bought several houses and got mortgages above the sale price. So they got $300,000 cash out of all these deals/ They intended to spend it on contractors improving the house. But never followed through due to greed and “struck it rich” attitude

So they walk away from multiple house deals that go bust in a declining market but still win $300,000 free cash. The system in California and Florida, Nevada, Arizona is too overburdened to go after them. But is functional enough to foreclose and evict people

[lmr]

Does losing a job qualify as ‘irresponsible behavior’?

Nope.

I said ‘irresponsible behavior’, that means hardship is not included.

I also raised the point that many of these loan modifications are being defaulted on within 6-12 months. Does that help the bank? Nope. Does that help us? Nope. If the government guarantees the note, who picks up the tab? That’s right! US.

Check this out, 75 percent re-default?:

http://realconcepts.blogspot.com/2009/05/fitz-ratings-report-loan-modification.html

This guy sources his info real well, btw.

[driftdiver]

For the most part those people don’t live in the homes.

[Sparko]

I wrote: “Today, people cannot unload their homes because the banks now require 20% down”

dalereed wrote: "When we bought our home in 66 you had to put down 30% or better and the payment, insurance, and taxes couldn’t excede more than 32% of your net income."

"That’s exactly how it should be today or any time..

"When I was making $3.25/hr.we saved $8k in 7 years and when my wages went up to $3.75/hr we were able to buy our home for $34k in 66 with $7k down."

Thanks for the experience story, dalereed. The first requirement (30% down) may then have been dependent upon the area. It certainly was not true based on my experience where I lived.

And you are correct, some variant of the second requirement has always been a rule of thumb: 2 and 1/2 your gross, or 3 times your income

I agree with you, those with skin in the game are less likely to walk out - and the fact that you saved more than one year of income in seven years is testimony to goal setting and thriftiness.

But many (millions?) successfully bought and stayed or sold houses that they acquired with 5% down or less during the 60s, 70s, 80s, 90s.

With anything, a few spoiled it. Congress and lobbyists, lending institutions, and social engineers trying to get people into houses that they could not afford to pay the monthly PITI over time did the rest.

As an aside, if you had saved $8k in 1966 and lived in the south, you could have paid for half of a starter home with ease as they were running $15 - $20K in some parts.