Let's stop being naive about who did what. Brokers (including real estate brokers) made a lot of money. But so did the banks AND so did some of their employees. Did we all forget that only a couple of years ago WAMU was investigated for encouraging appraisal reviews that always passed? The appraisal review firm was to either say yes to every appraisal or lose the WAMU account. I even have witnessed many bank underwriters making double or more their annual income with cash donations from brokers to approve loans. Lenders did not perform audits on files to make sure everything made sense and why should they have when in reality they were playing with other peoples money they were lending out (securitization was a marvelous invention by Lenders). And in reality, when you look through the fog, lenders are working on cutting out the brokers completely so they can take full control of the financing world. They need to shurn a profit and soon or else they loose market share and shareholders and shareholders lost means money lost. And why is it that it is everyone's fault but the person that took the loan? Are we saying that all borrowers are completely ignorant? Money was easy to obtain and it fullfilled all the things that we wanted, tv's, cars, travel. We all had a good time and the good time is over for the moment. It will come back again, greed will make sure of that.
Lenders are shutting out brokers because of the massive fraud, first payment defaults and the simple fact that...OMG...they don't NEED them!
The banks got along just fine without brokers up until the late 90's (when everything started getting stupid) , and they'll get along just fine without them once again.
However, loan modifications make no sense either for many people as they are not in their best interest. Consider this analysis I did:
LOAN MODIFICATION OR WALK AWAY? The Business Case.
I decided to work a few numbers related to the walk away factor since this is starting to surge. As an example, consider the following:
Assume: Homeowner owes $400,000.00 on a home that is now worth $200,000.00. The loan of $400,000.00 has an interest rate of 6.5% The homeowner has reached out to their lender and is now offered a loan modification for an interest rate of 4.5%. This scenario achieves the following:
Current mortgage: $400,000.00 @ 6.5% = $2,528.27 per month.
Modified mortgage: $400,000.00 @ 4.5% = $2,026.74 per month.
Savings of ~$500.00 per month. On the surface, saving $500.00 per month sounds like a good deal, but is it?
Since the asset is worth only $200,000.00, consider the various interest rates for a term of 30 years:
6.5% rate gives a payment of $1,264.14.
8.5% rate gives a payment of $1,537.83.
12.0% rate gives a payment of $2,057.23, similar to modified payment proposed.
15% rate gives a payment of $2,528.89, similar to current mortgage payment.
In effect, the current lender is asking you pay a cash flow to them on an asset worth $200,000.00 with the modified loan at 12% or at the current monthly payment at 15%. This assumes that you pay your mortgage for a total of 30 years. Paying a mortgage at those rates makes no sense.
30 years with a payment of $2,026.74 yielding 11.933% for a total of payments of $729,626.40.
30 years with a payoff at 10 years with a payment of $2,026.74 requires a $319,532.34 payoff yielding 14.933% for a total of payments of $562,741.14.
30 years with a payoff at 5 years with a payment of $2,026.74 requires a $363,972.30 payoff yielding 21.616% for a total of payments of $485,576.70.
This analysis is important. It would be rare that a consumer will actually go longer than 10 years with a modified loan and realistically it will end up being refinanced or the property sold somewhere between 5 to 10 years. That would mean the consumer will end up paying somewhere between 15% to almost 22%.
However, if the homeowner becomes a renter, consider this cash flow analysis:
Renting for various periods:
Renting for 10 years with rent for years 1-3 at $1,600.00 at years 4-6 at $1,750.00 at years 7-10 at $1,850.00 would be a total of payments of $213,000.00.
Renting for 5 years with rent for years 1-3 at $1,600.00 at years 4-5 at $1,750.00 would be a total of payments of $99,600.00.
Of course, none of this assumes any increase in value for the underlying property being owned nor any tax benefit. Any increase in value over the next 5-10 years is highly speculative and even a 5% increase per year still does not impact the 10 years projection in any real favorable ways. As consumers grasp this concept, the results could be dramatic.
Uhhm Matt Foley, I invite you to post examples of the horrible fraud that was committed by brokers? And I will advise you that before you do spend the time of thinking of these, the general broker community was never provided access to services such as Lexis Nexis. These were only available to the Lenders. Any kind of fraud checking software was available to only lenders. Appraisal reviews were compelted ONLY be lenders. Verification of income by filing IRS form 4506T was only done by lenders.
Anyway, you are on the wrong path if you feel sorry for what banks are going through right now. And by the way, things got stupid in the 90's because banks came up with 'securitization' to boost their profits. BROKERS DON'T LEND MONEY, BANKS LEND THE MONEY WHEN THEY APPROVE A LOAN. Why is this always ignored?
And they will grasp this concept. They will walk. It will be catastrophic if this is not dealt with quickly. Rising unemployment, rates and inflation will make this a certainty.
From a business standpoint it is ASSININE to try and hang on to your home when you are so far upside down.
Real estate values aren't everything, but I think we can all agree without it's stability there will be NO recovery.
Since our government and banks (same interests) have no intention of practicing mark to market accounting, take the hit, cut your losses and move on.
The banks would love nothing more than to shove all the blame onto the borrower. Banks have the resources to discern value of a property and they have the ability to nix any deal. If a bank lends an amount on a property, it is tantamount to an assertion by them that they would TAKE the property as payment FOR the property. If banks want to predicate repayment on amounts they assess as the value then jingle mail should constitute payment in full. If I give a home back to the bank in a condition similar to how I purchased it and the bank doesn't have to give me anything in return, how are THEY being shortchanged?
I have been checking your blog on a daily basis since I "discovered" you. This is the best, well-put, frank & honest comment/blog I have ever come across and I can't help but put in my 2 cent worth of opinion. I can't add anymore to what you just have said today and before (checked your archives too!). Is it possible to buy a one whole page ad in the Los Angeles Times to spread this truth? I'm sure there will be more than enough money to cover this expense. What say you, honest, straightforward third parties, specifically lawyers out there?
When I first came across these 2 stupid bills (SB 94/AB764), I immediately thought of them as being unconstitutional and just plain stupid. I wondered what this group of insensitive, misinformed lawmakers were thinking? I agree that there are a bunch of scammers out there as I have become witness to their deceiving tactics but please, there are more honest people around too.
As somebody who has been actively assisting homeowners in their struggle to keep their homes, I cannot express any more than what has been talked about in your blog. Negotiating with a lender is a very time-consuming and tedious process. I currently do this on a daily basis and believe me, it has become a lifestyle and the money that comes with it (on a single file) is not even worth it. I can't put a price tag on the amount of effort that is being put in every case. My only consolation is knowing that I was able to assist a family in keeping their home through a reasonable loan modification.
I feel sorry for the widow from Agoura, CA. The husband need not die. That's just one story we have heard today. Wells Fargo is beyond despicable. Negotiating with them is not for the faint hearted. Just a little over 2 weeks ago, a Wells Fargo rep "initially" approve my client to stop foreclosure proceedings in exchange for an "initial" down payment and better hurry, cuz the "offer" is good for today only. I asked for time to consult with client and was nice enough to give me until the next morning. When I called back exactly the time agreed. Guess what? They couldn't "find" my authorization. Was I shocked to hear their incompetence and inconsistence? Of course not. I have learned to play these lenders games already. But for a homeowner, who's nervous, confused, harassed and intimidated, this is too much. I have realized that a homeowner in distress loses strength in the midst of a simple conversation with a rude, moronic $12.00/hour clerk (or should I say..."negotiator/specialist) on the other end of the line. That Wells Fargo clerk who caused this tragic event to happen to this family has blood on his/her hands.
I am sure there are more cases of this nature. So far, I have to deal with client/homeowners who pass their stresses to me. These people do not know what to do. I am blessed with over 20 years of real estate experience (as a neutral closing agent) and working now with an attorney who has a passion towards helping homeowners. We can only do so much but if these bills are passed, what more can we do. As more homes are getting foreclosed, what has the government accomplished?
Sorry for this long blog. I could go on and on but I guess I am just a small voice out there. YOU GO, MANDELMAN!!!! KEEP ON BRINGING IT ON!!!!
Be safe and well,
modarna
Thank you so much, I can't even tell you. First of all... send me anything you have on banks and their "today only" offers, and anything you have on the "loan mod fees" they're charging. Seriously. Don't give up...
Secondly:
Lee Wasser, props his feet on an adjacent desk chair as he waits on hold for more than 20 minutes to speak with GMAC Mortgage.
His clients, Dean and Nancy Piercy, owe $380,000 on the loan for their home in Shasta Lake, Calif. A logger, Mr. Piercy has lost work hours, making it hard for them keep up with their $2,048 monthly payment — soon set to rise.
Mr. Wasser has already negotiated a solution: GMAC will accept only $270,000 in repayment, allowing the couple to get a fixed rate mortgage from another bank.
But that suddenly is in disarray. The Piercys have been making their payments, but GMAC has been putting their checks aside, holding the money as “loss mitigation fees,” until their application is completed. It has notified credit bureaus that their loan is more than 90 days delinquent, which has lowered their credit score, disqualifying them for the next mortgage.
Mr. Wasser reaches GMAC’s loss mitigation department. He asks for the delinquency to be removed from their status. But that must be handled by a different department: customer service. He is transferred there, where Jessica picks up the call.
“We are not going to amend,” she says, after a strained back and forth. If Mr. Wasser wants it otherwise, he will have to talk to loss mitigation.
“I just talked to them five minutes ago,” he tells Jessica.
“No, you didn’t.” Jessica replies.
“Are you accusing me of lying?” he asks.
Mr. Wasser asks for Jessica’s employee identification number, but the line goes dead. Jessica has apparently hung up.
And that was just one of the situations witnessed and written about by Peter Goodman of The New York Times about a week ago. Here's the link.
If you are trying for a loan mod you MUST HIRE A ATTORNEY! PERIOD! or you will be wasting valuable time.
I use to work at one of the big banks, and I can tell you ALL OF US who worked there were instructed that if ever contacted by a law firm, the call was to directed to a different department.
Legal talks to legal. Its that simple. Banks don't need some massive lawsuit from a law firm, they have no fear of the "unrepresented" homeowner who has no clue about the game.
I was helping my mom with a loan mod and got 1 month of run around. Then I said mom, "time to hire a attorney." Interesting enough the paperwork given to us from the Law Firm, who is experienced in loan modifications, was DIFFERENT than the paper work given to us by the lender. Not by much, but is was CODED differently! Meaning, to me, that the bank/lender would know if the loan mod came from a regular homeowner or a law firm. Even the number to fax the papework to was different in the last four numbers.
The loan mod, which we were told by the lended could NEVER BE DONE BY THIS LENDER, has now been DONE!!! Case closed.
Mortgagemess... Could you please get in touch with me? I need this story. mandelman@mac.com. It's important and I won't reveal you identity if you'd prefer. Seriously... Mandelman
I think the Author seems to be just a tad too sensitive to be a lawyer.
We in the industry get the blame for the entire demise of the world economy. A couple of bad apples do not compare to the Wall Street and Bank Greed and Consumer greed of the past few years but we still get the blame.
LAWYERS are only good when they stop breathing. There are MORE than a couple of bad apple lawyers. The entire industry of lawyers suck and you guys rip EVERYONE off. You run around like dogs chasing not your tail but your own pocke to stick your hand into.
Gimme a break. The bank isn't going to do any worse to us without you than you are going to do to us with you.
Oh...and please don't give me the c**p that you know more than us. LOL! You guys are dumb. You passed the bar? So what. I passed the CPA exam. I bet I'm more qualified to represent the borrower than you.
KUUNER...
Okay, I'm a little confused by your response. I am NOT an attorney, and am not at all sure where you got that impression. Lord, please don't tell me it's from my writing style, because if I've started to write like a lawyer, I'm not sure I want to go on. Just thinking that and my breathing has slowed down... insomuch as I whereas heretofor.... aarrrggghhhhhh.... (thump, crash).
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