Skip to comments.Foreclosure woes: For one homeowner, following bank's advice was bad news
Posted on 06/08/2011 8:01:42 PM PDT by Jim 726
PANAMA CITY BEACH Lindsay Hall took out a $200,000 loan in 2005 on her paid-off beach house with the understanding that her $600 monthly Social Security check would cover the mortgage payments.
When her interest rate jumped more than a year ago, it raised her mortgage payments to $1,500. At that point, Hall started the fight to save her home.
I want to say I did my best to fight for the American dream, said Hall, 70.
Hall has negotiated with her loan servicer, IndyMac Mortgage Services, to modify her loan payments multiple times. Each time she negotiates payments within her $600 budget, the modification is rejected and the mortgage payment jumps back to $1,500 a month, she said.
To begin loan modifications, lenders often advise or suggest homeowners miss three payments to send up a red flag and initiate the modification talks. When payments are missed, loan modification talks may begin, but banks, meanwhile, also will start foreclosure proceedings.
After loan modification talks failed, Hall tried to change her loan through the Home Affordable Modification Program (HAMP) offered by the U.S. Department of the Treasury. For the past three months, she was able to make payments of $585. Hall, who continues to work, received a letter informing her that she no longer qualifies for the program based on her income and that her payments will jump back to $1,500 a month.
Im back on hold; Im waiting for the lender to let me know what I need to do next, Hall said. This is the first time I have thought its over and Im going to lose the house.
The bubble burst
Hall purchased her two-bedroom beach house in 1970, paying $38,000 for the property with the income she generated from owning and operating a dance studio in Dothan, Ala. At the time, her mortgage payment was $103 a month. When Hall semiretired in 1994, she moved to Panama City Beach as a full-time resident.
Hall took out a $50,000 loan in 1994 to update the property, which she paid off. In the 2000s, Halls elderly mother moved into the home, and in 2005 following the advice of a friend, Hall took out a $200,000 loan on her beach house, which was valued at $400,000, to convert the garage into a mother-in-law suite, add central heating and air, reroof, pay off credit cards and purchase a vehicle.
I didnt have a fixed rate, which I know all about now, she said. Im one of those dummies that should have known better. Now, my $400,000 house is worth $180,000 if we were lucky.
As her mortgage servicer kept increasing her monthly payments, Hall took her work ethic to the phones and started calling her lenders and representatives. She calls her lenders every Monday and logged her discussions and paperwork.
Ive just bugged the heck out of them, Hall said. I wanted this settled. Im not trying to get out of making payments. I just want to pay what I can pay. Im not going to die over this and I just dont want to be sleeping on a park bench after working my entire life.
The News Herald wrote a story about Hall and several other local individuals dealing with foreclosure in March 2010. After the article appeared, Hall said her borrowers started calling her and working toward a loan modification, a task that has yet to be completed.
I goofed up and borrowed more money than I should have, Hall said. It would be much easier to give up. I need some help, people.
IndyMac was acquired by OneWest Bank in 2009; officials from the bank said last week they would look into Halls situation.
Delaying, preventing foreclosures
A common problem or misperception for many homeowners in trouble happens when borrowers try to get a loan modification. Lenders often require borrowers to go into default, missing three payments, before engaging in a discussion about modifications.
If you miss three payments, the bank passes off the case to a law firm to begin foreclosure proceedings, said Florida foreclosure defense attorney David C. Hicks. People are getting a false sense of security from banks.
Mediation, like in the case of Hall, does not typically produce a positive outcome for homeowners.
What we have seen is that mediation has not done a great deal, said Hicks, who is based out of Tampa. For one reason, theres no principal reduction, so if you are upside down in equity there is no way to get out from under it.
The federal government has two programs aimed at helping homeowners. The first is HAMP, a loan modification program designed to reduce delinquent and at-risk borrowers monthly mortgage payments.
One of the problems with HAMP is that there are guidelines for who is eligible and it can be a catch 22 for many homeowners, Hicks said. You have to prove income, and for many people they dont have enough money or they have too much money. HAMP does not really help.
The Home Affordable Foreclosure Alternative Program (HAFA) was created to provide an option for homeowners who are unable to keep their homes through HAMP. HAFA exists as an exit strategy when homeowners know they will lose their property and they want to avoid a deficiency judgment, Hicks said.
Both HAMP and HAFA are voluntary programs for lenders; they do not have to agree to allow the loan holder to participate. When a homeowner knows they will lose a property, the best thing to do, according to Hicks, is to make sure there is no deficiency judgment.
Hicks explained that homeowners are still responsible for the outstanding loan, even if a property goes into foreclosure and is sold. Banks and collection agency have a window of several years to try to recoup the balance on a loan.
The biggest mistake you can make is getting a deficiency judgment, Hicks said. The loan follows the person, not the property. The property secures the loan, but that does not stop banks from being able to garnish wages and other assets.
A big misunderstanding with loans is that the institution to which a mortgage payment is made out does not own the loan; it is servicing the loan. In many servicing agreements, there are clauses that allow banks to make more money on a foreclosure than on servicing a 30-year loan, Hicks said.
They dont care about loan modifications, Hicks said.
In the cases where loan modifications are granted, 60 percent of the homeowners are in default again within nine months, Hicks said.
You want someone negotiating on your behalf from a position of strength, Hicks said. It might sound like a sales pitch, but you should hire an attorney. Most homeowners are not educated on the process.
Hicks recommended legal aid or hiring a professional attorney.
Victory depends on the equity status of the house, Hicks said. You cant expect miracles.
Do not expect the federal or state government to help.
I wish I was in the position this woman started in... having a paid off house.
That about sums it up. Used her house as an ATM, and got burned. So sad, too bad... but why should people who refrained from such foolishness be required to bail her out?
Yes, that was my first thought. What a dumb thing to do.
For $200,000 she could have built an additional house. Sounds like some contractor took her to the cleaners.
And she is only the tip of the iceberg. All those new cars, trips around the world, boats, condos in exotic places, timeshares, the children’s and grandchildren’s college expenses, etc. and then the cash cow died. How sad and unfair ... who to blame it on?
She wants to pay $600 a month on a $200,000 loan...
Well at an interest rate of ZERO it would just under 28 years to pay that off...
What the hell did she expect? Free money?
While true that she probably shouldn’t have pulled $200k out, or any, the fact remains that people ARE being mislead on loan mods, which, are hard to get and only being offered to people who are not paying.
The other thing I noticed...based on the $200k loan size, her payment increase wasn’t due to the “rate going up” as much as that her introductory negatively amortizing payment period was expired...and she had to start paying back principal.
Not only refrained from such foolishness, but paid extra in the form of points to get a lower locked in rate. So now not only do I have to pay my mortgage, plus the points, plus a rate that was higher than her low adjustable rate, but now I should have to help her pay her mortgage???
How about someone helping me? How about adjusting MY mortgage?! I’ve never missed a payment, took a part time job to help make ends meet, I don’t go to Disney, never buy “new” cars and I just canceled cable to save money.
Why is it always me that has to pay to help these people?
It was probably LESS THAN Interest Only, an “Option ARM.”
An artificially low payment that doesn’t even cover the interest, but when the loan balance increases to where it’s more than about 115% of the original amount, you have to start paying back principal plus all the month’s interest.
“What the hell did she expect? Free money?”
Yup. Zero interest loan for x years most likely. Of course, the bank assured her it was a good idea, I’m sure.
What a mess...
Feds Cite Schumer In Collapse Of IndyMac
Flowers, Soros, Michael Dell team to buy IndyMac
caveat emptor doesnt cover Con men and grifters...
thanks. I just now read about “option ARM”. Man, what a freaking scam. It sure sounds like that that’s what that lady had. The math fits.
At 70 she’s old enough to remember the inflation, high interest rates and adjustable mortgages of the 1970s. She was paying a mortgage then and probably grateful that she had a fixed rate.
$600 a month is never going to pay off a 200K mortgage.
“Hall, Lindsey” returns no matches on PCB property tax rolls.
“Hall, Linda” has only only one return that is close to a beach house and thats a condo in a tower.
It’s astonishing how many people just have no clue about personal finance and economics topics. It’s just not that hard. Maybe something needs to be done at the High School level, to give more people some basic clue about how to deal with basic financial decisions.
This person clearly didn’t know bad advice when she got it.
There’s a relative of mine, some sort of step-aunt or something... she and her husband both have had good, well-paying jobs. Before the big crash they were into a third mortgage on their not-yet-paid-for house— all of that money borrowed went for vacations and cruises and other travel. Every penny they made was being sunk into those loans. They had no savings anymore, and of course massive credit card debt. They’d buy lavish presents for themselves on their cards, and then merely pay the minimum payment... never touching the principal, which just grew, and grew...
I simply don’t understand it. How can anybody be that big of a financial disaster?
That article says "Linda prides herself on her ability to pay her own way. She paid cash for her car. She doesn't have credit cards. She saves up to travel."
Prides herself??? She admits in the newer article she bought that stuff with money she borrowed on her house. Paying cash for a car and paying off credit cards is easy when you borrow against your home.
Don't be an ass. It's the agreement the bank made with her. If that wasn't sufficient, they shouldn't have made the loan. You're blaming her for the bank's foolishness.
See what real estate does over the next 30 years, as we Baby Boomers croak in a thunderous avalanche of rottenness heard across the universe. It’s going to get interesting.
Hmmmm. The previous article reads just like this one and was written in March of 2010. Something weird here. Ages and properties not adding up. Will do more hunting in the AM.
I think you are correct. It was probably an interest only loan. My dad went that route about the same time. He now has to pay the catch up rate. He is 84 and he thought he would be dead before the piper came due. He had initially asked me about it and I told him NOT to take an interest only loan.
My wife and I are trying to sell his house. We pray we get what is owed on the loan.
>> but why should people who refrained from such foolishness be required to bail her out?
We’re in bigger trouble when we point our fingers at the gullible and give a pass to those that scammed them. Furthermore, bailouts have already been given to the scammers.
I pity those who thought they were working within a viable, trustworthy system. I condemn the scum Congressmen and opportunists that seized on the unwitting prey.
Stinking cataclysm tag line test. ;-)
Granted, a 30-year old adult should have the mental acuity not to get caught in such a trap. But they do, anyway. But when someone 64+ trusts a loan officer to find a loan that stays within her SS payment, and that trust is broken by making an ARM with big points for the officer, that is elder abuse.
Likely the loan officer didn’t inform her there was an empty MBS trust he needed to fill up because they had already sold the certificates to the investors. As a result, her loan went in late, if at all, and so the trust never acquired the beneficiary interest and collected her payments anyway. When the loan defaulted, Fannie Mae paid it off at the original loan amount, then sold it back to OneWest, who is collecting on it a second time through foreclosure.
If you don’t believe or understand what I just wrote, then you don’t deserve to own a home, either.
I know what OneWest got from the FDIC in that deal, but, the loan officer probably had no idea at all the workings of the MBS side of things.
That's right. And We the People have no obligation to help you.
What the hell are talking about.
She got a teaser rate for awhile and now the rate went up as stipulated in the loan agreement.
The bank is following the conditions of the loan. She’s not. She’s trying to weasel out of the agreement SHE made. Obviously she thought the teaser rate would last forever... Duh...
She signed the papers to get $200k. She had every opportunity to read them...and chances are at least 99% she knew the risk she was taking. The other 1% could be pure delusion.
but we can bail out the banks with trillions tax payers dollars. All seems fair to me /sarc
Either they’re idiots or brilliant...
“Brilliant” as in getting all the goodies and then walking away from the debt and letting someone else pay for it all...
The sad truth about those with paid off homes, is that they take out equity loans to update their worn out homes, or just to try to make it between social security checks. Now THERE’S a subject to talk about... Social Security - a nearly bankrupt program that was run into the ground over 15 years ago when money was taken out of that fund and never put back. Now seniors and the now aging baby boomer generation are going to suffer in the near future as that program will collapse in on itself. What does this have to do with the subject at hand? Simple - they cannot keep up with payments with dwindling incomes so these loans go into default and their now paid off home is going into foreclosure. A 70 year old woman is going to lose her home she bought in 1970!!! Paid for it through years of work, now will have nothing to show for it. THAT IS PITIFUL! OUR GOVT SHOULD BE ASHAMED OF ITSELF! Instead, they are not looking too concerned about the rise in foreclosures, the shrinkage good available jobs and a failing social security system. THIS IS SAD! Grandma’s and grandpa’s all over are living in homeless shelters that are already over capacity. At no time in U.S. history since the Great Depression has our economy been in tatters like this.
Sounds like a “reverse mortgage” might be the only option left to her at this point. Her family won’t get the nice beach house, but at least this way no one will be buried by a bad mortgage later on. Yes, it’s another loan on top of a bad one, but in the end, this might be a way to stick the bank, since they’ll be left holding a much-devalued property in the end.
So what was the 200k for, where did that money go?
Yup. There are plenty that will live large and stiff the creditor when they die.
Welcome to FreeRepublic, troll!
This lady should ask for the lien documents applying to the note. I’m sure no legal documents exist since her loan/mortgage was sold to wall street. Then she should just stop paying on the loan. Then go to court and ask for a quiet claim of title in her name.
Yep. Obviously a NegAm loan.
And you are quite right about mods. HAMP Trials are nothing but a another fee churning scam.
” in 2005 following the advice of a friend, Hall took out a $200,000 loan on her beach house, which was valued at $400,000”
Because she thought that would push the value to at least $700k and she could sell and profit even more from the paid-off house before the higher payments kicked in. She was 64 when she played this greed game—a year from collecting her SS. She had no intention of ever making the higher payments.
She may not of really understood the risk. Even Ben Bernanke didn't think there was a housing bubble back in the fall of 05. One was labeled a crackpot for suggesting that housing prices could fall substantially here on FR. Unfortunately for her, it appears she decided to suck all the equity out of the property near the time property values were peaking in PCB.
“I simply dont understand it. How can anybody be that big of a financial disaster?”
They are not concerned as to how high the price is...they are only concerned as to “how much a month does it cost.”
The majority of people have absolutely no idea just how much the total price on their homes or vehicle adds up to when the bill is finally paid. In most cases they could have bought at least two cars or houses for the total combined cost of the purchase price plus total interest for the life of the loan.
To borrow on a paid off house to piss the proceeds of on good times, goodies you always wanted, and not for expansion of the home or major repairs to the house is the dumbest things a person could do.
When the financial world ends (and that may possibly happen soon) your PAID OFF HOUSE is your only sanctuary and assurance that you will not end up sleeping under a bridge.
I own two houses. One was built in 1951 and the other much newer. The old one is paid off and the other has an active mortgage on it. If the economy fails, the bank can have this one back and I will move back to the safety and security of my old house. It kind of gives me a “warm fuzzy feeling” to know that I’ve not squandered the financial safety that the old house provides.
It won’t be long that housing in the U.S. will resemble that of England. Council houses, owned by the city councils of each town will own and lease the majority of all housing within that city. Private ownership will diminish to the point that a majority will not be able to own private property.
Here is an explanation I sent to a short sale guy. Long and boring if you are not really interested in the mortgage thing.
Repeat: Long and boring if you are not really interested in the mortgage thing.
Negative amortization loan
This will not explain, nor will it theorize the blame, philosophy, or legislation pertaining to the loans. This is just a theoretical example of the way it is. (or was)
Example home: Florida, 2005, typical loan. (could be almost any state)
Value: 250K Appraisal: 300K (This is an illustration. Of course high appraisals didnt really happen) Loan: 80% LTV 240K (for now, make believe there was no 2nd for 30K)
Interest rate: 7.5 Insurance and taxes 8K a yr. (remember, this is Florida, where insurance on the coast is extreme) Principal and Interest on a 30yr loan @ 7.5%=1678.11 Interest only pmt= 1500.00 Total PITI pmt= 2344.11
Now the good part. Wamu, Countrywide, IndyMac, World Savings, etc (all gone, btw) would allow you to pay back at a 1.5% rate for 5yrs or until you got to 125% of the original loan. Then the loan would re-cast. Then you would have to pay principal and interest to pay back the balance in 25 yrs, not 30. Here is how it worked.
The interest only payment on the original loan would have been 1500. At 1.5% payment rate, not loan rate, you are only paying 828.29. That is 671.71 less than the interest only payment, so you are adding that amount (671.71) to the back of the loan every month. In effect, you are borrowing every month, so at the end of 5 yrs, you have added 40302.60 to the loan. Now you will be at 125% of the first loan, and the loan will get recast.
In this example, here is a picture of the new loan. (if this sounds too crazy, ask a Florida Real Estate Broker or a recovering mortgage broker)
2010 Value: 150K Appraisal: 140K 80% LTV loan= 120K
You now owe 300K at 7.5% on a 150K property. You have 25 yrs to pay it off. The 25yr loan of 300K at 7.5% brings a new payment of 2216.97, plus the escrow, for a new total of 2882.97. An increase in your payment of 1388.68.
You owe 300K on a 150K home, and you are shopping around to see if you can qualify for a refi. Did I mention in 2005, you got a stated income, no or low doc loan? Now you will have to verify the income you lied about. And your credit score hopefully is still very high. (of course, with the value being what it is, it may be a moot point.)
This is why the mortgage crisis may not be as close to being over as many think. The heyday of the neg am loan was 2005, 2006, into 2007. The 5 yr clock from those loans is ticking, and many savvy people may just decide it is not worth an increased payment of that much to save a home that has decreased in value rather than increased as expected when the loan was originated. Of course, it is also possible many of the well intentioned homeowners wont have a choice, as they cant pay even if they want to.
Remember back in the beginning about the 2nd loan? Many equity loans were interest only for a given amount of time. Even if the homeowner can get a 5.25% new loan, the equity loan has to be paid off. With the new loan, plus the equity loan, you are looking at 330K. At 5.25, the loan payment is 1822.27, plus escrow, which is still higher, but palatable, but nearly impossible to get with the new LTV, and documented income.
Who changed the borrower requirements, and why, is a whole different thing. And why an individual would want a negative amortization loan is also a far more complex thing to get into. Hopefully this example will help you understand some of the dynamics to the neg am loan.
Thanks, I know how that all works. I was just pointing out that people didn't think property values would fall in any meaningful amount.
I suspected from your posts you knew. I should have indicated it was for those who were curious about the so called “Exotic” mortgages. For most people, this would be good reading material if one was having a hard time falling asleep. Or maybe were just curious. Probably would be good for Katy Couric, as she doesn’t seem to know the difference between a neg am mortgage and a default swap. For that matter, the differnce between AIG and Agway.