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.