There is one thing you didn't mention that you did nevertheless hint at: the 60% re-default rate was amongst borrowers who had largely been given forbearances. That is: no permanent reduction in interest rate, and DEFINITELY no principal reduction -- just "OK we'll tack your fees back on to your mortgage, make you non-delinquent, and you just promise that your income will go up from here on out. And that you won't lose your job or get cancer or anything. K?"
Well, if there's no fundamental change in the affordability of the loan, of COURSE most will re-default. The banks -- and the government -- have been playing chicken with an ailing economy. And the ailing economy is winning.
The PIMCO conversation was very telling -- the investors simply do NOT want to take the losses they need to take to make the loans affordable. Note also that PIMCO and its bretheren have been playing chicken with the Fed and Treasury, in the interest of not having to take "haircuts" on their bond holdings -- and winning every time.
I can't remember where I saw this comment originally, so I'm gonna have to paraphrase. Hope I don't mess it up too much.
The gist is that our modern banking model has evolved from being a situation where the banker personally knew the people to which loans were extended, which meant that when a loan began to default or the owner was distressed, the banker could go knock on their door and they could hammer out a solution.
This system was much more sound than our current model, where you can't even get a live person on the phone and your loan has been securitized and sold off to Timbuktu.
Aaron... You're right, and I guess what I'm saying overall is that when a bank "negotiates" with a distressed borrower, the outcome is always going to favor the bank, not the borrower.
I can't remember where I saw this comment originally, so I'm gonna have to paraphrase. Hope I don't mess it up too much.
The gist is that our modern banking model has evolved from being a situation where the banker personally knew the people to which loans were extended, which meant that when a loan began to default or the owner was distressed, the banker could go knock on their door and they could hammer out a solution.
This system was much more sound than our current model, where you can't even get a live person on the phone and your loan has been securitized and sold off to Timbuktu.
Yes... you're right. And the government does a fabulous job at answering the phone as well. It's time for Mr. Smith to go to Washington.
teambldr Dud?
Joined: 27 Mar 2009
Posts: 1
Location: Santa Ana, CA
According to Hope Now, more than half of the homes they "saved" with "loan modifications" were not mods at all but rather REPAYMENT PLANS.
In a typical repayment plan, the arrearages are spread over 6 to 12 months and ADDED to the regular payment. I'm willing to bet that at least half of those "modifications" failed due to not solving the underlying problem which is a payment that is too high relative to household income.
You are right about Hopeless for Homeowners. Last October Fox News reported that the program had modified 79 loans. Woohoo! At that rate, we'll be fine by the year 3012.
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