Mortgage Renegotiation

[sugarpop]

Originally Posted by Beestie

Your loan was sold once - maybe twice. What was sold over and over was the servicing rights - collecting the payments.

Unless your loan was one of the few that don't get carved up, it was put into a pool of other similar loans, and the combined payments from you and your pool-mates are split up into all sorts of interesting structures. However, as complicated as the structures are, all the payments to all the structures have to equal all the payments by all the borrowers for any given month. And that can get incredibly complicated.

hmmm. Maybe when I used the "traded" it was wrong, but from this description, can you understand how I made that mistake? What do you mean by "carved up" and"interesting structures?" I am trying to understand this. Thanks!

[xoxoxoBruce]

Originally Posted by Beestie

Your loan was sold once - maybe twice. What was sold over and over was the servicing rights - collecting the payments.

Unless your loan was one of the few that don't get carved up, it was put into a pool of other similar loans, and the combined payments from you and your pool-mates are split up into all sorts of interesting structures. However, as complicated as the structures are, all the payments to all the structures have to equal all the payments by all the borrowers for any given month. And that can get incredibly complicated.

Damifino? Several times I got notices from different places saying they now held my mortgage. It was a pain in the ass because they would invariably say the last guy wasn't collecting enough escrow.

But then the letters would start, do you know you live on a 100 year flood plain? Who wrote the flood insurance policy? Who wrote the homeowners policy? Why doesn't your mailing address match the deed address? Blah, blah, blah, every damn time. I was glad to be done with it.

[Beestie]

Definitely servicers. Not a very sophisticated lot.

Years ago I used to be the guy at Fannie Mae all the servicers would send the monthly servicing data and payment to for loans Fannie Mae actually bought and held onto (as opposed to securitizing). I was responsible for validating the data and the payment before uploading it to to make sure everything checked out. It usually did except for one servicer. Their data was always full of errors and the payment was always wrong. Serious errors. After months and months of looking at their servicing data and seeing things that I could not believe I was seeing, I told Fannie that the servicer was basically making shit up.

The year? 2003. The servicer? Countrywide.

Nobody listened.

[TheMercenary]

WOW. That is crazy Beestie.

[Beestie]

Originally Posted by sugarpop

hmmm. Maybe when I used the "traded" it was wrong, but from this description, can you understand how I made that mistake? What do you mean by "carved up" and"interesting structures?" I am trying to understand this. Thanks!

CMO
REMIC
MBS
CDO

Quiz on Monday.

[xoxoxoBruce]

Originally Posted by Beestie

The year? 2003. The servicer? Countrywide.

Nobody listened.

You mean this whole financial debacle is your fault because you didn't go on 60 minutes?

[TheMercenary]

It's Beestie's Fault!

[classicman]

Originally Posted by Beestie

CMO
REMIC
MBS
CDO

Quiz on Monday.

:Headspinning:

[sugarpop]

Thanks Beestie. It's still confusing, and frankly I think some of that stuff should be outlawed. I did watch the Dateline special last night on this whole mess. It was very apparent that certain mortgage lenders were mostly to blame (although there is plenty of blame to go around), and actually committed fraud, and used intimidation to try and force some people to get with the program, damn the consequences. The more I learn, the more I think a whole shitload of people should go to prison. And it was laughable that some of those people thought they could afford the houses they were buying. How in the hell could a personal trainer making $20k/year, who was basically homeless, think they could possibly afford a $250k condominium? Clueless.

[classicman]

Nearly a year after the Obama administration unveiled its ambitious housing rescue program, foreclosure tallies continue to break records. Foreclosure filings were reported on more than 2.8 million properties in 2009, up 21 percent from the previous year and 120 percent from 2007, according to RealtyTrac. With nearly 10 percent of mortgages now delinquent--which is also a new record--even more homeowners appear headed for foreclosure this year. "A massive supply of delinquent loans continues to loom over the housing market," RealtyTrac CEO James J. Saccacio said in a statement. "Many of those delinquencies will end up in the foreclosure process in 2010 and beyond."

Homeowners have found themselves in foreclosure for a number of reasons. Some purchased properties they could never really afford. Others lost their jobs--the national unemployment rate remains in the double digits--and had no way to make mortgage payments. But as the crisis rumbles forward, an additional driver of home foreclosures has become clear: Many borrowers have the means to keep paying the mortgage but are simply walking away because they believe it's best for their finances.

The number of so called "strategic defaults" more than doubled, to 588,000, from 2007 to 2008, according to a study by Experian and Oliver Wyman. A separate 2009 survey found that more than a quarter of all existing defaults were strategic. "Homeowners should be walking away in droves, The financial costs of foreclosure, while not insignificant, are minimal compared to the financial benefit of strategic default."

The case for strategically defaulting is linked to negative equity, or owing more on your home than it is worth. With home prices at the national level having dropped roughly 30 percent from their 2006 peaks--and a great deal more in certain bubble markets--a considerable chunk of property owners are now in this fix. Nearly 1 in 4 borrowers currently have negative equity, according to First American CoreLogic. And rather than continuing to make payments on an investment that's now worth significantly less than what they paid for it, many borrowers are throwing in the towel.

White uses the following example to demonstrate how many borrowers are better off defaulting: A young professional couple with two children pays $585,000 for a three-bedroom, Salinas, Calif.-home in January 2006. At $4,300, monthly payments on their no-money-down, 30-year fixed mortgage with an interest rate of 6.5 percent represent a tad less than 31 percent of their gross monthly income. Toss in taxes, student loans, health care, food, and other essentials, and finances quickly get tight.

After the historic housing bust, their home is now worth $187,000, but they still owe $560,000. Other homes in their neighborhood, of course, have plummeted in value as well. And if the couple was to purchase a similar, nearby house listed at $179,000, their monthly payments would be less than $1,200. That's a huge savings over their current $4,300 monthly mortgage bill. But since a foreclosure on their credit report is likely to prevent them from buying a home in the near-term, they may have to rent. And about $1,000 a month gets them a comparable rental property in their neighborhood.

"Assuming they intend to stay in their home ten years, [the homeowners] would save approximately $340,000 by walking away, including a monthly savings of at least $1,700 on rent verses mortgage payments, even after factoring in the mortgage interest tax reduction," White writes. "If they stay in their home, on the other hand, it will take [the homeowners] over 60 years just to recover their equity--assuming, of course, that they live that long."

Link

Wow - thats a situation that isn't going to be fixed no matter how much money you throw at it.

Any thoughts on the idea of refinancing these types of mortgages at something closer to the current value of the home? IS that a feasible option? Logistically or financially? Would the lenders have to wipe the monetary differential off their balance sheet? Would that amount just vanish?

[xoxoxoBruce]

It's already vanished, mostly because it never existed, except in the bubble.

[classicman]

I know Bruce, but I would venture a guess that a house that was assessed at $500,000 3 years ago is still on the books for that amount - even though (assuming) its present value is 1/2 that.

[xoxoxoBruce]

You mean the tax books or the mortgage books? The tax thing would require a reassessment. The mortgage thing, poof, now you see it, now you don't. It only existed on paper and never was tangible. Probably that mortgage was folded, spindled and mutilated too. That's why so many people have been successfully fending off foreclosure by demanding the company trying to foreclose produce the signed mortgage papers.

[lumberjim]

Originally Posted by classicman

Link

Wow - thats a situation that isn't going to be fixed no matter how much money you throw at it.

Any thoughts on the idea of refinancing these types of mortgages at something closer to the current value of the home? IS that a feasible option? Logistically or financially? Would the lenders have to wipe the monetary differential off their balance sheet? Would that amount just vanish?

if you're asking whether it makes sense for lenders to write off money owed because the collateral is no longer worth its initial value, then no.. that won't happen....and it doesn't make any sense. would you allow them to increase your debt if the place appreciated?

[xoxoxoBruce]

They are renegotiating terms (interest rate & time), though, to prevent having to take possession of properties they don't want.