awgee_IHB
New member
Darn, this is going to kill 80% of the supposed loan mods folks are "getting".
Loan Mod? No Problema.
- Thread starter awgee_IHB
- Start date
NEW -> Contingent Buyer Assistance Program
I think the peak was much higher than $1.5M. If you are correct, then you are saying that house prices only rose by just under 7%/yr between the end of 2004 and the peak in July '07. They rose more like 15+%/yr during that period. This home more likely had a peak valuation of close to $2M. That Aug close appears to be more of a 31-35% drop from peak.
That only really affects the third party lod mod scammers (you know, the guys with the poorly done TV ads), not folks who get loan mods directly through the owner of the loan.
If you think back, everybody has been saying this or that doesn't make sense, especially foreclosures. But when some time has gone by and all the pertinent info becomes public knowledge, the logic becomes obvious.
If the banks write down a hundred thousand or so principle on your neighbor's house, what are you gonna start thinking of doing?
If the banks start writing down principle or making any actually significant loan mods of any sort, a whole lotta folks are gonna stop paying their mortgages who otherwise would pay. Why should they pay if the banks reaction to non-payment is to lower their principle and interest? In the article I linked, folks who can afford their mortgage are just deciding to stop paying cuz their house is worth less than what they owe. Can you imagine what would happen if the banks go tell those folks that the consequence for non-payment is free equity?
This country better pray that loan mods do not start including principal write down. You think the real estate market is a mess now?
Yup, I can already tell you a buddy of mine in Ladera mentioned to me his neighbor was bragging to his neighbors about getting a principal reduction, and told everyone he negotiated it by falling behind. My buddy told me several others stopped paying their mortgages in order to try to get the same treatment. My buddy was trying to do a legit refi... just having issues because the home he bought with > 20% down had dropped so much that he was at like 10% LTV and they wanted 20% to refi, and he was trying to figure out how to come up with the money so he could take advantage of the lower rates. Meanwhile his neighbors who put < 10% down are intentionally defaulting on their loans to try to get a principal reduction.
Delroy
If there is PMI, they pay out on the loss, which isn't recognized until the REO is sold. For example, if a homeowner took out a $500k loan with only 10% down and PMI, then defaulted with a principal balance remaining of $425k, the bank chose foreclosure, and the REO house sold at auction for $225k, then the PMI company would be on the hook for the $200k difference. I think.
That may be correct. Since we did the 80/20 (and paid off the 20 within the first 12 months) I don't have direct experience with it. Maybe someone else knows for sure.
Sorry about that whole "UW knocked USC out of the top 10 in the AP Poll" thing... that had to hurt.
stepping_up_IHB
New member
'0NewportSkipper said:
I think the peak was much higher than $1.5M. If you are correct, then you are saying that house prices only rose by just under 7%/yr between the end of 2004 and the peak in July '07. They rose more like 15+%/yr during that period. This home more likely had a peak valuation of close to $2M. That Aug close appears to be more of a 31-35% drop from peak.
Geotpf_IHB
New member
awgee said:
That only really affects the third party lod mod scammers (you know, the guys with the poorly done TV ads), not folks who get loan mods directly through the owner of the loan.
awgee_IHB
New member
It doesn't seem that the lack of ability to pay is the problem with these folks. So, loan mods probably aint' gonna make squattola of difference, unless the bank wants to write down a few hundred thousand in principle on each property.
"Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore -- a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion -- are far more likely to default strategically than people in lower score categories."
"But it does suggest that lenders and loan servicers take steps to screen and identify strategic defaulters in advance and possibly avoid offering them loan modifications, since they'll probably just re-default on them anyway."
"Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore -- a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion -- are far more likely to default strategically than people in lower score categories."
"But it does suggest that lenders and loan servicers take steps to screen and identify strategic defaulters in advance and possibly avoid offering them loan modifications, since they'll probably just re-default on them anyway."
tmare_IHB
New member
I am still looking for real life examples of a bank writing down a mortgage balance (more than a few thousand, honestly, that's not reality here in So. Cal). The most recent
foreclosure in my neighborhood sold for 675K in late 2005, the bank foreclosed and listed it this week at 380K. Is the unwillingness of the bank to reduce principal an expression of the bank's desire to not set a precedent? I know the former renters from the bank would have been happy to have their mortgage written down to 380K, they would have even paid their mortgage for the 16 months they were allowed to live in the house for free. It seems that the bank would have come out ahead if they had done so, the house will probably sell for 320K. I'm really not saying that I think banks should do this, it's just unfair in so many ways to so many people, but speaking from a purely financial point of view (which is what, I presume, a bank is interested in), this just doesn't make sense. BTW, is it just this house or are banks moving much more quickly once they finally kick people out? The former owners moved out on Sept. 5th and the first open house was today.
foreclosure in my neighborhood sold for 675K in late 2005, the bank foreclosed and listed it this week at 380K. Is the unwillingness of the bank to reduce principal an expression of the bank's desire to not set a precedent? I know the former renters from the bank would have been happy to have their mortgage written down to 380K, they would have even paid their mortgage for the 16 months they were allowed to live in the house for free. It seems that the bank would have come out ahead if they had done so, the house will probably sell for 320K. I'm really not saying that I think banks should do this, it's just unfair in so many ways to so many people, but speaking from a purely financial point of view (which is what, I presume, a bank is interested in), this just doesn't make sense. BTW, is it just this house or are banks moving much more quickly once they finally kick people out? The former owners moved out on Sept. 5th and the first open house was today.
awgee_IHB
New member
tmare said:
If you think back, everybody has been saying this or that doesn't make sense, especially foreclosures. But when some time has gone by and all the pertinent info becomes public knowledge, the logic becomes obvious.
If the banks write down a hundred thousand or so principle on your neighbor's house, what are you gonna start thinking of doing?
If the banks start writing down principle or making any actually significant loan mods of any sort, a whole lotta folks are gonna stop paying their mortgages who otherwise would pay. Why should they pay if the banks reaction to non-payment is to lower their principle and interest? In the article I linked, folks who can afford their mortgage are just deciding to stop paying cuz their house is worth less than what they owe. Can you imagine what would happen if the banks go tell those folks that the consequence for non-payment is free equity?
This country better pray that loan mods do not start including principal write down. You think the real estate market is a mess now?
cletus_IHB
New member
awgee said:
Yup, I can already tell you a buddy of mine in Ladera mentioned to me his neighbor was bragging to his neighbors about getting a principal reduction, and told everyone he negotiated it by falling behind. My buddy told me several others stopped paying their mortgages in order to try to get the same treatment. My buddy was trying to do a legit refi... just having issues because the home he bought with > 20% down had dropped so much that he was at like 10% LTV and they wanted 20% to refi, and he was trying to figure out how to come up with the money so he could take advantage of the lower rates. Meanwhile his neighbors who put < 10% down are intentionally defaulting on their loans to try to get a principal reduction.
Delroy
tmare_IHB
New member
The same person who was just kicked out this month bragged to a neighbor just after he stopped paying his mortgage that the bank was going to reduce his principal, it turned out to be total BS, but it did elicit the same "I want the same deal" response from the neighbor who told me about it. Just like I thought, a precedent that no bank wants to set. I guess they'd rather lose the money (or not if the PMI is paying for it).
Forgive my ignorance, but when the bank forecloses, does the PMI pay the full value of the loan? Most of these people haven't actually paid much principal at all. If that's the case, then isn't any amount received for the property then just 100% profit for the bank? Good deal for the bank if that's the case, but it would seem that they should foreclose much more quickly than they do.
Forgive my ignorance, but when the bank forecloses, does the PMI pay the full value of the loan? Most of these people haven't actually paid much principal at all. If that's the case, then isn't any amount received for the property then just 100% profit for the bank? Good deal for the bank if that's the case, but it would seem that they should foreclose much more quickly than they do.
trrenter_IHB
New member
Tapped FHA means only 45,000 will receive aid instead of planned 850,000
Nothing like falling a little short!
Nothing like falling a little short!
usctrojanman29_IHB
New member
Print baby, Print!awgee said:
stepping_up_IHB
New member
Remember that PMI is only for people with a first that was less than 80% of the purchase price. One of the humdingers of the boom is that people did 80% first and 20% seconds with no PMI. Very few of the defaults from loans made during the heyday have PMI. The second lien hold is losing everything, but the first usually givbes them a token and the first is still losing a lot of money when they foreclose.
Nude_IHB
New member
tmare said:
If there is PMI, they pay out on the loss, which isn't recognized until the REO is sold. For example, if a homeowner took out a $500k loan with only 10% down and PMI, then defaulted with a principal balance remaining of $425k, the bank chose foreclosure, and the REO house sold at auction for $225k, then the PMI company would be on the hook for the $200k difference. I think.
usctrojanman29_IHB
New member
I thought PMI is only on the hook for all the losses up to 80% of the previous value (i.e. if someone puts 10% down then PMI will only cover a 10% loss).Nude said:
Nude_IHB
New member
USCTrojanCPA said:
That may be correct. Since we did the 80/20 (and paid off the 20 within the first 12 months) I don't have direct experience with it. Maybe someone else knows for sure.
Sorry about that whole "UW knocked USC out of the top 10 in the AP Poll" thing... that had to hurt.
graphrix_IHB
New member
Ugh... PMI covers a portion of the loss. Not the entire mortgage amount. I'd go google the exact numbers or even search here on IHB, but since everyone else is too lazy to do it... then so am I.