You know when I was growing up, foreclosure was a scandal. And in the early days of the burst housing bubble, most people still thought that it was. The people losing their homes were treated by courts, press, and society at large like deadbeats and ne’er-do-wells.
Then we began to learn the truth about predatory lending practices that steered homeowners away from conventional mortgages and into subprime mortgages. We began to learn that mortgage originators wrote loans with no assessment of whether or not the homeowner could actually make the monthly payment, because the originators were making their money on the fees, not on the loan repayment.
We learned that Too Big To Fail banks got paid 100 cents on the dollar in federal bailout money for the toxic assets supposedly backed by these mortgages. Doesn’t that mean the mortgage debt has been paid in full by the feds? Doesn’t the federal government own those mortgages now? Still, the banks and their servicers continue to file foreclosure actions on houses for which the debt has already been paid by the government.
Is it any wonder that people who thought they were entering into a legitimate business transaction and faithfully paid their mortgage for as long as they could found out that their lenders were not dealing with them in good faith on mortgage modifications? And this is despite the fact the government mandated and paid the lenders to do such modifications under HAMP and HARP. Is it any wonder they feel that the social contract between them and the bank has been broken?
So, it’s not surprising that homeowners no longer feel a stigma attached to foreclosure. It’s no wonder they now feel free to just turn in the keys and walk away. The social contract that is a part of every contract—a meeting of the minds and a basic level of fair dealing—has been broken by the banking industry. And that trust, once broken, can have a devastating long term effect on those banks. HuffPo even recommended that depositors move their money out of TBTF banks and into local community banks.
I think that Bank of America has sniffed the wind and realized that they have to start dealing in good faith on mortgage modifications pretty damn soon.
From a report emailed to me over the weekend:
At the core of the foreclosure-prevention strategy is ignoring delinquencies. The percentage of older delinquent loans not yet in foreclosure is startling: 60% have at least 12 missed payments, and 35% have at least 18 missed payments. Add to this that three-fourths of delinquent loans are not in foreclosure, and we see that hidden losses well exceed those in the open.
Uh, they're not being "ignored" - this is systemic and intentional fraud.
Remember, these loans are either being held by someone or securitized into some sort of package. When you have a loan that has no chance of "curing" (to cure a loan with 12 missed payments the borrower would have to come up with the 12 payments to bring it current!) that loan should be carried at its recovery value - that is, the value of the collateral that can be seized and sold, LESS the cost of eviction, remediation and resale.
Does anyone recall all the entries I've written about getting competent legal and accounting (tax) advice before proceeding with any sort of action regarding walking away, short sales or foreclosure? This same report says:
Many homeowners would be better off going into foreclosure, than doing a short sale. Short sales are fraught with potential legal, credit, and complicated tax issues. For example, someone who refinanced could owe capital gains taxes, which are not forgiven under federal and California temporary debt relief acts. In the foreclosure route, borrowers can live in their house mortgage-free for at least one year, maybe two years. Both short sales and foreclosures are reported as “account not paid in full”, and are equally damaging to a credit score. An exception exists if short sellers can negotiate better terms with their lender on recourse liens. The other possible advantage to a short sale is the ability to get a mortgage again in 2 years (Fannie, Freddie), rather than having to wait 3-5 years after a foreclosure.
Homeowners pursue short sales, unaware of the problems they are creating for themselves. Their agents never warned them of deficiencies, ruined credit, taxes due on forgiven debt, or legal consequences. Agents made flowery promises to get listings, and now the lawsuits are starting.
No, really? You mean that people in the real estate business are less than truthful with their clients? That would never, ever happen with licensed professionals, right?
Then there's this, which I also have written about:
Another gray area is junior lien holders asking buyers for additional payments. As the market improved, juniors were no longer content with $3k thrown to them from the senior. They now want 10% of the junior note. They argue the additional payment is legal practice because the payment is made to escrow and appears on the HUD-1. However, they are actually hoping the senior lien holder does not read the HUD-1. The California Association of REALTORS® position is that all payments made by the buyer or agent in the purchase of a short sale must be part of the written short sale agreement signed by the senior lien holder. Concealing payments from seniors is loan fraud, and omitting these payments from the HUD-1 closing statement may violate RESPA. Some seniors reinstate their security interests because of the fraud. It’s surprising that the biggest banks are responding, when pressed on the fraud of their request, “just do it if you want the deal done”.
Right. Big banks saying "just do it"? Why would they do that? Is it so they can re-instate their security interests? No, nobody would ever do anything that hoses the consumer, would they? Naw.....
Few people understand that the bank that gave them their mortgage turned around and sold it into a mortgage bond, and the “bank” on their mortgage statement is actually a servicer.
Actually, it's a bit more complicated than that.
As I've been working on (and writing on) for a long time, and as a few attorneys are now starting to understand, the entirety of this process was corrupted and is rife with outright fraud from top to bottom.
Let's go through a (partial) list of the problems:
Penis enlargement pillsYou know when I was growing up, foreclosure was a scandal. And in the early days of the burst housing bubble, most people still thought that it was. The people losing their homes were treated by courts, press, and society at large like deadbeats and ne’er-do-wells.
Then we began to learn the truth about predatory lending practices that steered homeowners away from conventional mortgages and into subprime mortgages. We began to learn that mortgage originators wrote loans with no assessment of whether or not the homeowner could actually make the monthly payment, because the originators were making their money on the fees, not on the loan repayment.
We learned that Too Big To Fail banks got paid 100 cents on the dollar in federal bailout money for the toxic assets supposedly backed by these mortgages. Doesn’t that mean the mortgage debt has been paid in full by the feds? Doesn’t the federal government own those mortgages now? Still, the banks and their servicers continue to file foreclosure actions on houses for which the debt has already been paid by the government.
Is it any wonder that people who thought they were entering into a legitimate business transaction and faithfully paid their mortgage for as long as they could found out that their lenders were not dealing with them in good faith on mortgage modifications? And this is despite the fact the government mandated and paid the lenders to do such modifications under HAMP and HARP. Is it any wonder they feel that the social contract between them and the bank has been broken?
So, it’s not surprising that homeowners no longer feel a stigma attached to foreclosure. It’s no wonder they now feel free to just turn in the keys and walk away. The social contract that is a part of every contract—a meeting of the minds and a basic level of fair dealing—has been broken by the banking industry. And that trust, once broken, can have a devastating long term effect on those banks. HuffPo even recommended that depositors move their money out of TBTF banks and into local community banks.
I think that Bank of America has sniffed the wind and realized that they have to start dealing in good faith on mortgage modifications pretty damn soon.
From a report emailed to me over the weekend:
At the core of the foreclosure-prevention strategy is ignoring delinquencies. The percentage of older delinquent loans not yet in foreclosure is startling: 60% have at least 12 missed payments, and 35% have at least 18 missed payments. Add to this that three-fourths of delinquent loans are not in foreclosure, and we see that hidden losses well exceed those in the open.
Uh, they're not being "ignored" - this is systemic and intentional fraud.
Remember, these loans are either being held by someone or securitized into some sort of package. When you have a loan that has no chance of "curing" (to cure a loan with 12 missed payments the borrower would have to come up with the 12 payments to bring it current!) that loan should be carried at its recovery value - that is, the value of the collateral that can be seized and sold, LESS the cost of eviction, remediation and resale.
Does anyone recall all the entries I've written about getting competent legal and accounting (tax) advice before proceeding with any sort of action regarding walking away, short sales or foreclosure? This same report says:
Many homeowners would be better off going into foreclosure, than doing a short sale. Short sales are fraught with potential legal, credit, and complicated tax issues. For example, someone who refinanced could owe capital gains taxes, which are not forgiven under federal and California temporary debt relief acts. In the foreclosure route, borrowers can live in their house mortgage-free for at least one year, maybe two years. Both short sales and foreclosures are reported as “account not paid in full”, and are equally damaging to a credit score. An exception exists if short sellers can negotiate better terms with their lender on recourse liens. The other possible advantage to a short sale is the ability to get a mortgage again in 2 years (Fannie, Freddie), rather than having to wait 3-5 years after a foreclosure.
Homeowners pursue short sales, unaware of the problems they are creating for themselves. Their agents never warned them of deficiencies, ruined credit, taxes due on forgiven debt, or legal consequences. Agents made flowery promises to get listings, and now the lawsuits are starting.
No, really? You mean that people in the real estate business are less than truthful with their clients? That would never, ever happen with licensed professionals, right?
Then there's this, which I also have written about:
Another gray area is junior lien holders asking buyers for additional payments. As the market improved, juniors were no longer content with $3k thrown to them from the senior. They now want 10% of the junior note. They argue the additional payment is legal practice because the payment is made to escrow and appears on the HUD-1. However, they are actually hoping the senior lien holder does not read the HUD-1. The California Association of REALTORS® position is that all payments made by the buyer or agent in the purchase of a short sale must be part of the written short sale agreement signed by the senior lien holder. Concealing payments from seniors is loan fraud, and omitting these payments from the HUD-1 closing statement may violate RESPA. Some seniors reinstate their security interests because of the fraud. It’s surprising that the biggest banks are responding, when pressed on the fraud of their request, “just do it if you want the deal done”.
Right. Big banks saying "just do it"? Why would they do that? Is it so they can re-instate their security interests? No, nobody would ever do anything that hoses the consumer, would they? Naw.....
Few people understand that the bank that gave them their mortgage turned around and sold it into a mortgage bond, and the “bank” on their mortgage statement is actually a servicer.
Actually, it's a bit more complicated than that.
As I've been working on (and writing on) for a long time, and as a few attorneys are now starting to understand, the entirety of this process was corrupted and is rife with outright fraud from top to bottom.
Let's go through a (partial) list of the problems:
