Posts Tagged ‘mortgages’

If Banks Can’t Do Subprime, They Won’t Lend At All

A full third of Americans cannot qualify for a mortgage these days, recent data from Zillow.com and MyFico reveals. Would-be homeowners with credit scores at 620 or below are not being approved for traditional 30 year mortgage, even when they come with a healthy down payment of 25% or more.

In the days of glory before the housing bubble burst, these folks would have been steered into dangerous subprime loans that we know today were doomed to fail. Despite the fact that in most cases, this same group of people would have done fine with a conventional loan,  the banks wanted to increase their profits to extreme proportions.

Today, with foreclosures at record numbers and some banks being left holding the bag, most banks do not want to risk lending to people with low credit scores, all other things being equal. This is particularly troubling since many Americans have seen their credit scores take a hit from the bad economy. The housing market is weak enough, and banks not lending is a major factor in the continuing sluggish growth of the economy.

Show Me The Note Rule Slowing Foreclosure Filings In Florida

“Show me the note” has become a foreclosure process rule in the state of Florida.  The new rule, handed down by the Florida Supreme Court, requires that lenders prove that they own the mortgage, and therefore have the right to foreclose, before starting the process.

During the housing boom, when mortgages were being issued left and right and later bundled together and securitized for sale on Wall Street,  it became an all too common practice to lose track of the original note, which is evidence of the debt that the borrower is required to repay. 

The problem with this is that without the note, lenders really have no way to prove that they are owed the money and have the right to foreclose on the property. This is important because if a lender were allowed to foreclose on a property without proving their legal claim, the true holder of the note could initiate a new foreclosure proceeding and leave the borrower on the hook for the money a second time, and with no home to forfeit.

As a result of this new rule, the rapid pace of foreclosure filings has slowed somewhat. This can only be a good thing for beleaguered homeowners as they try to save their homes from foreclosure.

Strategic Default = A Free Rent. Really??

I am sick and tired of posts like this one. It is yet another moralistic, snide view point from a person without an ounce of common sense.

The Times story features Alex Pemberton and his mom, Wendy Pemberton, who both live in St. Petersberg, Fla., and who both pay an attorney $1,500 who says he does “as much as needs to be done to force the bank to prove its case.”

That $1,500 these homeowners are paying in lawyers fees is considerably less than what they’d pay to keep up with the mortgages. So they pay the lawyer and justify their defaults by saying that this is simply business. And nowadays, homeowners finally seem more apt to approach homeownership in a cold, even ruthless business manner

I have two major problems with the above statements: For one, how does the author know that paying on the mortgage would cost less than the $1,500 that these homeowners are paying the attorney? Moreover,  where in the story does it say they pay the attorney $1,500 per month?

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Geithner Chides Mortgage Servicers For Not Doing Enough To Help Families Avoid Foreclosure

geithner

Reuters reports today that Treasury Secretary Geithner is upset with mortgage servicers for their lagging efforts in helping troubled homeowners avoid foreclosure. He is also incensed to hear of servicers acting in bad faith by foreclosing on families who might have qualified for a HAMP modification, losing documents, and even guiding families away from help.

Secretary Geithner has vowed to get tough with servicers who are not in compliance with HAMP guidelines and “withhold incentives or demand their repayment” as a consequence of their non-compliance.

While it is good to hear that Treasury is beginning to take some action with recalcitrant servicers, I have to wonder if it will be enough. As with the entire HAMP program, this may be too little and too late to be of use to anyone.

Too Big To Fail? Too Big To Exist!

 

Some facts to ponder from Senator Sanders’ remarks:

  • The four largest banks issue two-thirds of United States credit cards
  • The four largest banks make half of all U.S. mortgages
  • The four largest banks hold forty percent of bank deposits and $7.4 trillion dollars in assets.

In the late 19th and early 20th centuries, our government passed the Sherman and Clayton Acts, which were aimed at ensuring a competitive environment in which the free market can operate. Standard Oil, which at one point, controlled 91% of production and 85% of final sales of oil, was broken up because it was too big.  More recently, AT&T was forced as part of a legal settlement, to break up into smaller companies. It held a sanctioned monopoly over telephone service for many years.

Over the past thirty years, our anti-trust laws have been largely ignored. If there was ever a time when they need to be dusted off and put into action again it is now. The banks control too much of the United States and their folly has hurt not only the U.S. economy , but the global economy as well.

What do you think? Is it time to break up the banks?

Thoughts On YouWalkAway.Com

There are many good posts on the YouWalkAway Blog and  its owner and CEO, Jon Maddux,  has good intentions in actually helping people through this foreclosure crisis.  I also can’t fault his arguments regarding the failure of the government’s foreclosure mitigation programs to address the magnitude of the crisis. The Congressional Oversight Panel, in report after report, has stated that the Administration’s efforts lag far behind the scope of the crisis.

Having said that, relentlessly pushing the idea that the government can’t help (when in fact, it has helped at least some families, and that’s better than nothing, at this point) and that the only solution is for everyone  to walk away ignores one fundamental thing:

It ignores the emotional consequences of losing a home, especially if one has lived in that home for a long time. A home is more than just a building that you live in and, really, is not an investment that can be viewed in that sense. It is a place where you (hopefully) build your lives and your family. This value cannot be measured in dollars and cents.

Furthermore, it is traumatic to lose your home, whether you walk away and let the bank foreclose on you or you must do a short sale or a deed in lieu. You can’t analyze the situation with the same cold blooded calculus that applies to business decisions.

In closing, I’d like to make one last point about YouWalkAway.Com. It is itself a for profit business. It sells services to assist homeowners in staying in their homes as long as possible before walking away.  It has no doubt helped many distressed homeowners find the least painful way to let go of their homes, but make no mistake, there is some basic marketing at work there, too.

The S.E.C Sues Goldman Sachs For Fraud

The New York Times reports that the Securities and Exchange Commission has filed a lawsuit against Goldman Sachs for securities fraud over actions taken by the bank during the mortgage meltdown.

The lawsuit alleges that in February of 2007, Goldman Sachs created a financial instrument known as Abacus 2007-AC1, along with 25 other similar instruments,  that allowed  the bank and a few investors to wager against the housing market.

Specifically, this instrument was created at the behest of hedge fund manager, John A. Paulson, who had earned billions of dollars in 2007 by correctly guessing that the housing market would crash. While Goldman was telling the investors to whom it sold shares in Abacus that their investments were sound and that they were picked by  an “independent manager,” it had allowed Paulson to choose which bonds would go into Abacus. Paulson, of course, chose the weakest bonds that would certainly fail. Goldman and the other investors who bet against the housing market made billions while the investors that bought into Abacus lost billions, $10.9 billion, to be exact.

Although the mechanics of the matter are complex and hard to understand, the fraud here is very basic. Goldman represented that the shares in Abacus were sound when it knew in fact they weren’t and made money because of this fact.

Short Sales vs. Foreclosures

As the foreclosure crisis continues largely unabated by the Making Home Affordable program, we are now seeing a push from the government for servicers and lenders to consider short sales. A short sale is where the property is sold for less than the balance of the mortgage note.

Pushing short sales is not an acceptable answer to the foreclosure crisis. No amount of coercing from the government, absent the force of law,  will get mortgage servicers to accept the kind of offers  a homeowner is likely to receive, especially in areas where home values have plummeted over 20%. 

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Barry Ritzholtz: HAMP Prolonging The Agony

Some people disgust me and Mr. Ritzholtz is on the top of my list right now. 

Mr. Ritzholtz insists that the reason HAMP is not working is because homeowners can’t afford their homes.  He says it would be better to let the lenders foreclose and absorb the losses, and let the families get into “more affordable” rentals.  He says, in effect, HAMP is just prolonging the agony and if the process were just allowed to play out, the market would correct itself over time.  You can read his article here.

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