Posted on 01/31/2010 7:57:46 PM PST by TigerLikesRooster
I'm walking from my underwater mortgage
By JANET SPEER
Last Updated: 7:34 PM, January 31, 2010
Posted: 4:34 AM, January 31, 2010
I stopped paying my $1,450-a-month mortgage on my 200-year-old, four-bedroom home in September 2008 -- after making the hard decision to walk away from my mortgage because it is hopelessly underwater.
It is not an easy decision to walk away from your home, and in the beginning I actually felt like a loser. That was the hardest part.
You see, I was raised to live up to my financial responsibilities. I was taught plenty about personal responsibility. But in this case I had no practical solutions to my financial dilemma -- I lost my job, was turned down for a mortgage modification and owed a lot more than the house is worth.
I WOULD RATHER FIGHT THAN SWITCH HOMES
I am a single parent with three children, one with medical issues. So, with only unemployment benefits and child-support money, I decided to pull the plug on my mortgage payments.
(Excerpt) Read more at nypost.com ...
She says she can't support her family, but she doesn't say where the father (or fathers) of the three children in all this is.
Tell me about it. Mine is 820 and my bank won't answer my calls since they know I am good to pay and will never be late never mind default. So they have no incentive to work with me. So I pay extra every month and try to tread water.
Somewhere I read that the “credit counseling” or “debt relief” agencies, the ones that advertise how they don’t reduce debt “they eliminate it”, are owned by credit card companies! And, they don’t really do anything the borrower can’t do on their own. From what little I understand, they merely stop making payment on the lines of credit until the accounts go to collection agencies, whereby then the debts are settled on some percentage.
The whole thing is pretty odious from start to finish — unsecured credit, I mean.
But secured credit - a mortgage loan in theory is different. Collateral. One thing I remember hearing for years, decades even on talk radio shows, was never, ever, buying or selling real estate without having an attorney represent. Apparently hardly anyone does this. If that’s true, it’s amazing that people will borrow 100,000, 250,000 or more usually the largest purchase in anyones life, and all on the fly! But let’s say that this was common practice, and both sides were roughly proportionally represented with their counsel by reviewing documents prior to closing and at close, etc. Could the nightmare of the NINJA loans and ARMS and subprime have been averted? What happened to the PMI that a lot of borrowers were paying for, aren’t the banks collecting on that? Just the tip of the iceberg on questions about these loans and their borrowers. This is not going to end well.
The short answer, a mortgage is a contract. It’s worth a certain amount of money. So is the house, but the value is not fixed, like the debt is.
So while the value of the house, expressed in dollars, can go up or down, the contract is expressed in a fixed amount of dollars. She can’t pay, so she loses the security interest or, collateral for the loan.
After that, I go lay down because it gets complicated. The loans aren’t kept by the banks anymore — they just service the loan payments. The mortgages were bundled together, cubed and squared, sliced and diced, and sold as Mortgage Backed Securities, a type of bond that were very attractive in low interest rate environments and were touted as very safe, almost akin to Ts, as in an “implicit” government guarantee.
PMI wasn't necessarily a requirement on sub-prime loans with less than 20% down. Some did, some didn't..
How is this any different than theft? You borrowed money, you signed a contract to pay it back. If you don’t that is, at best, breach of contract, at worst it is outright theft.
LOL! The condo is in the building I live in currently. I’m the President of the HOA!!! I know everything there is to know...good and bad!
No it isn't. The contract has a penalty clause saying if you don't pay the mortgage the bank repossesses the property, so it is already covered by the contract. There is no breach, you just invoke altarnative clauses.
If we, (the government), keep allowing large companies to walk away from their financial obligations, and do not punish those that become wealthy by stealing, ala Goldman Sachs, this will become more prevalent. I know Obama wants this because a crippled economy means more slaves, but we the people cannot allow a large company to steal and criticize an individual for doing the same.
wow. thanks for that!
You can make that 3.
LOL!!
OK, Hildy, you know what you are doing.
Just trying to look out for you!
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But the real issue isn't the loans, but the decay of trust. Our financial system and legal system of contracts is built on trust. As this grows, we are seeing more and more trust erode.
This is a bigger danger than the money lost. If neither party trusts that the other will full fill the contract, it will lead to no contracts being issued.
I know judges do it, but there is no guarantee your judge will and technically they aren’t abiding by the law. If unlimited mods were available in bankruptcy, the rate would go up to 10 million per year. Everyone with an underwater mortgage would file and even if you were close, you’d file. The banks would collapse even faster than they are now.
Ideally, there should be a write down of the mortgage and a cut in principal to actual value with a profit sharing kicker for the future. Banks lose far more in foreclosure than they would from massaive mods.
Judges? They would have nothing to do with it in most states. In a chapter 7 they rarely will sign off on a mortgage reaffirmation agreement anyway.
A during BK mod is up to the bank. Hell, ANY mod is.
As far as which way foreclosure/mod is a more probable loss, I’d go with this scenario. Most of the ‘first time’ home buyers who could not have qualified for a conventional mortgage, will most likely default on a mod as well. That is IF they ever get to “permanent mod” status. Something pathetically few qualified folks ever reach because of bank obstinacy and incompetence.
Here’s the issue with principle write-downs. What happens to the guy who is making his payments despite loss in market value? Does he get a readjustment too?
I’d argue the best way to handle that is with a partial principle forbearance. I think the current guideline limit is 30% of principle. Just set aside whatever amount, up to that percentage as a ballon payment at the end of the mortgage.
But banks for the most part are not even doing this.
Right, I was talking about the bankruptcy cramdowns. The banks won’t do these permanent mods with principal writedowns because they don’t have to realize the actual loss on their balance sheet for now. Since mark to market was eliminated they can just keep the fantasy valuation on their books and no one is any the wiser, forestall the eventual disaster to later date when they have retired and their successor has to bite the bullet.
First time homebuyers and others who could never afford their mortgages have mostly defaulted by now anyway. The tidal wave we are now facing is Alt-A’s and Option Arm Resets or Pick Arms. These are people for the most part who have been making their payments-reduced teasers-but who will default when the reset comes and their monthly payment triples. These people are the ones that the programs should set out to save. In addition, the primes are getting killed now and the over $1millions are taking a hit.
The largest single determinant in whether a home will be foreclosed upon is equity. If there isn’t any or it is negative, people walk. So if the bank has a 150k mortgage and the house is worth 125k, and the bank forecloses, they will realize around 100k after costs, if they can actually sell the property. So from a purely business standpoint it makes sense to permanently mod the mortgage. But you do have the moral hazard issue, which is why they only talk to people who are 90 days late or more. However their mod departments are pathetic and slow and by the time they get off their butts, too much water has gone over the dam.
I’d have to agree with pretty much all that.
I’ve talked to folks that have gotten into trial mods that have been two years behind, or not behind at all. Some with a little equity, or 100% upside down.
It’s almost as if the banks are pulling these borrowers out of a spinning drum.
The only common component seems to be they are all employed. Then it’s like a lottery to see who gets the coveted fed style HAMP mod, or who gets jacked by some in-house joke mod that in many cases raises the monthly payment.
Then there’s those that have had their houses sold during the process, banks reneging months after final contracts are signed, on and on.
......I am a .....
Disgruntled feminist loser
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