The Banks Are Swamped With Defaults
By Patrick on Tue, Nov 3rd, 2009 at 1:41 pm | 1691 views | rss | email this | add commentPosted for reader A.
Hi Patrick,
I’ve sent some links to you in the past. I don’t have any links right now, but I thought I would share at story from the trenches with you. I am a patent attorney and I have been doing some pro bono work for a family that got over their head. They stopped paying their mortgage in the beginning of the year and the bank has yet to assign anyone to handle the loan modification. I call every so often and the only response that I get when I actually get to speak to a person is that they are busy right now and that I should call weekly to see if anyone is assigned to the loan. Surprisingly, the family’s real estate agent got a low ball bid on the house two months ago and I have been trying to get in touch with the bank to see if we can work out a short sale. I tried calling dozens of times. All I get is an automated messaging system that leads me to the voice mail of someone that does not respond. I have tried the fax number that is supposed to receive the hardship letters, but the fax has been turned off. I get the sinking feeling that there are a lot of losses that are hidden from us simply because the banks can’t handle all of their defaults.
A.
Joined: June 8th, 2007
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The Congress relaxing there rules on the Capitial gains the IRS charges you when a bank forgives a mortgage isn’t helping at all. In many cases it’s actually more benefitial for people to walk away then to try and tough things out. If there was a heavy tax bill to be paid for walking away, I think some of the borderline people would stick things out and continue to pay there mortgages.
Joined: April 3rd, 2005
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Wants 3/2 for $500K in 94025
True, maybe this is the best possible time to walk away!
On the one hand, I’m really annoyed at the people who over-borrowed and made housing much more expensive for responsible people. The over-borrowers should not get off scot-free.
On the other hand, the banks should learn some caution too. Walk-aways hurt the banks, so that might inspire more caution.
On the third hand (?) the Fed is printing cash and giving it to the banks in exchange for mortgages that are never going to get paid back.
Isn’t there somewhere I can go with a gov’t that is not totally rigged to keep people in debt?
Joined: September 10th, 2009
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I also heard (from an Attorney) that the Banks are bundling many foreclosures and selling say 100 homes to an investor for cents on the dollar.
What I want to know is who are these investors? Are they in colusion with the Banks? Is this a game of some kind - if so what kind of a game?
Are these investors even US citizens? What are their plans in the long run? Since we bailed out the banks - why don’t we have first crack at the homes?
Joined: June 1st, 2009
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The rich get richer - or bailed out. It is sickening. I agree with you Luckster - hook us up with those deals instead of fluffing up investors so they can drill all of us again. The US Government is the pimp and we are a giant harem of whores.
Joined: September 23rd, 2009
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Did you not get “hooked up” with 8K housing credit or Bush $500 rebate?…even pimps give their ladies $50 to go buy some nice clothes and get their hair done. LOL
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Wants 4/3 for $400K in 92009
wish i was lucky says
Some investors are hard money brokers who pool funds from individual investors to buy a bundle of foreclosures. These bundles are the last resort for banks who need to raise cash to meet FDIC guidelines.
Joined: September 23rd, 2009
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Does anyone know how many foreclosures are being kept off the markets?
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4X says
That is the trillion dollar question right there Quad.
Joined: September 29th, 2009
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wish i was lucky says
This market has dried up. Investors could buy pools of homes as recently as 8-10 months ago and get a legitimate 60 cents on the dollar (the actual market value). You’d need a minimum of 10M to play and even at those low levels, you’d end up with homes mostly spread throughout the rust belt that no bigger hedge funds wanted.
Tinkered accounting rules and a stabilized housing market (at the low end) have caused this market to tighten considerably. I’m hearing that 60 cents has become 70-75 cents, making process not very profitable.
Lots of people talk about big bulk REO deals at cheap prices, but 99% of it is just that: talk.
Joined: September 22nd, 2009
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Wants 4/2 for $170K in 95341
When a home is sold post-REO, that is the value of the home in everyone’s eyes - lenders included. PLUS, No FHA loans for 6 months after a non-occupant owner buys an REO. So, some investor buying loads of crap will find those loads sitting around a while and zero profit on the re-sale side.
Joined: September 10th, 2009
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OK
But after reading one of Patricks items last night regarding Naked Short Selling where investors can actually sell stock they haven’t even borrowed and don’t own - and also other articles about how hard it is to figure out who actually owns a house —
I’m wondering if the banks even own what they are selling for one thing.
I also wonder how the property taxes are being paid - especially since the banks don’t have any money.
And if the banks are selling to friends and getting kick backs and stuff - then there is something wrong with that. I was just wondering if they have invented some new kind of juggling act that pays off, allows for crooked bookkeeping etc. and allows them to hide all this inventory.
Also - some of the banks here in the U.S. are foreign owned - do they just keep the homes or are they required to sell them?
From what I can tell - it takes months or years for the homes we’re seeing vacant to go back on the market. Many are older homes (some have been remodeled) and they sell quickly WHEN they come back on the market if they are priced right - but then as the prices go down - some of them end up foreclosed again. From what I can see now and because nothing is really selling right now - I think the prices will be going down again at least in this area (and I’m noticing more people moving out again - so I guess there will be more foreclosures). I am also noticing that they are not putting up for sale signs on all the vacant homes even when some of them are for sale.
Maybe it would be better to put a more true value on the homes - when they put it up for sale - then any offers above the value would have to pay that difference in cash. This might help keep the homes from becoming repeat foreclosures.
A home value should not be based just on what someone will pay for it (because that can change from day to day) so just because someone wants to buy a $300,000 home for $500,000 doesn’t mean the bank should loan that much.
It has a real value in the cost of land and the cost to build. Unfortunately some of these costs have become really inflated over the last 30 years. So it makes it difficult to know what the real price should be. However, one could say that if the neighborhood is the type that would be appropriate for people who make $40,000 - $60,000 - then the homes would only be worth $120,000 - $180,000 which is close to what parts of this area were in 1997. However, prices for these same (older 50 yr old homes) were up around $475,000 plus at the top of the bubble and according to zillow - the prices are back around $250,000 on up which is really too high for what you would get.
Many contractors had 2 or 3 homes and many got in over their heads on remodels that would have sold if they had finished before things started crashing. For them - that was their retirements. Also a couple of local landscaper/gardeners - One had 3 homes and lost 2 for sure - the other one left as soon as prices went down (He bought for about $445,000 and left and moved around the corner and is probably paying about $1500 for rent).
Joined: October 7th, 2009
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Wants 4/2 for $525K in 94526
I just helped my boyfriend short sell, and it was literally hell. good luck!!!! I literally called daily, and it still took about 4 months… each time a different story, the run-around, so on and so forth…. I also am torn of whether or not walking away is moral, but after doing some research, I realize that for many its their only option! sad, but true. A lot of those who are in over their head, didn’t realize what they were getting into, and certainly didn’t expect their homes to lose 200k in value… I think the banks should FOCUS on short sales, as its much better for them, and the home “owner”… but they don’t care about that! how about congress start bailing out the american people, not the banks…
Joined: June 8th, 2007
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wish i was lucky says
I was thinking about this on the way home from work yesterday, and I was trying to puzzle out how such an investment would work. Ok, so you have a block of investors that buy stock or shares in a fund that buys a block of 100 houses. But, buying a tangible asset such as houses isn’t the same as buying shares of IBM and sitting on it until the market turns around so you could sell at a profit. Someone would have to be hired to manage all these properties, and most likely they would need a small construction crew. Every property in the investment would have to be visited to assess it’s condition and area it’s located in. And ideally all the houses would be located in a close geographical area, within a 100 mile area. If the houses were spread all over the country, that makes managing of the properties much more difficult. Obviously some of the houses would still have the former owners living in them, some the the vacant’s would be damaged where the former owners spilled paint on the carpets, stole the appliances and kick holes in the wall out of spite, and a few of them would be vandalized to the point of where someone ripped all the copper pipes out of the walls. As the houses are assessed, they would have to be sealed up to pervent further damage from vandals, the property taxes will have to be brought up to date and other conditions like sealing up the pool or mowing the lawn have to be taken care of for public health reasons (many townships are starting to fine banks for having pools that become Mosquito breeding grounds).
Ok now that you have an good idea what you have in stock, you pick the most valuable properties, do what ever repairs are required to make them attractive houses and sell them at market or below market prices to get quick sales. I’ll just make a wild guess that 20% of the inventory can be sold fairly quickly at good prices to begin earning a return for the investors.
Some of the houses could be offered to the former owners at discounted prices, this saves you the trouble of evicting them, and the cost of fixing them up to sell them. I’m sure if someone offered you your own house at 50% of the former mortgage you were paying, many of them would jump at the chance. The lower mortgage would allow them to qualify for a new mortgage and they could have equity in the house again. While you could potentially make a little more money by evicting them and fixing the place up, the risk may not be worth the awards, again spiteful owners being evicted can do considerable amount of damage to a property, delays by the courts, legal fees, the costs of repairing the property and the uncertainy of the market could leave you with inventory sitting around unsold for quite some time. I’ll guess you could dump another 10% of your inventory here.
Now the hard part comes, it become increasely difficult to flip the properties as the reamining inventory are in more undesireable areas, require more extensive repairs, and a weak market affects profits you earn from the houses. Of course you could just sit on them until the market rebounds, but again, you have to pay taxes and do minimal property management. Vacant properties left for extended periods of time tend to get broken into, kids kicking in the walls for fun, drug users crashing there, or get burned to the ground, which affects the overall value of your investment.
Joined: July 8th, 2009
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Walking away from a mortgage might have moral issues, but it comes down to a business decision. Look at your average lawyer, he doesn’t practice law, he practices business activities. Should I take this client on, who wants to sue X person for 10 Million dollars? They are right, they are entitled to this, but that person has $0 and is bankrupt. WHY do it then? It’s a business decision.
Your house is a business decision as well. You write off the mortgage for a reason, you invest in remodels for a reason, you select it carefully for a reason. Many people will say it’s because you want a home, you want a beautiful place to live, etc, but it’s a business decision in the end. Walking away is nothing more than a business decision.
If that person is border line, it’s a tough decision. Border line, underwater by a bit does not mean someone is walking away. If you barely got into your mortgage and say it’s for 300K and your house is 250K, do you walk? Probably not. If you do, you’re an idiot most likely. If you ever wanted to purchase a home again, your changes of getting another loan are far more limited. You’re going to have to resave. You’re going to have to pay another commission. You’re going to have to move and pay for that twice, in and out of your new rental. Not to mention you need to start the whole process over again. Finding a home, making it the way you want, etc. 50K is a lot of money, but probably not enough to walk away from. You might new a few thousand by walking away. How about 300K to 200K? The numbers start to get iffy now. What about 300K to 150K? Now you’re looking at problems. 300K to 100K? Now you’re way under and it’s probably worth it. Border line requires going under water by a fair amount before it makes sense to walk away.
Now, who does the 8K credit actually help? The buyer, the seller, the bank, OR all those people who are under water? An 8K credit might help the bank out a bit? The buyer it might help out if they’re able to use it for a down payment. The seller gets 8K more for sure! But really, it props up ALL the homes in an area, which helps keep those homes from going under water. Eventually it will have to go away, but people will hopefully be calmer, more rational and won’t jump ship without really looking at what it will cost them to do so. The credit helps the masses, not the buyers or sellers or the banks. Really people just see the people “profiting” from the 8K, and not all the potential havok it is potentially help curb. It really helps keep home prices propped up, while people CALM DOWN.
Those people under water might want to walk away, but until they’ve really analyzed the situation like a businessman would do, they’re just as likely to double up on their mistakes by walking out when they shouldn’t.
Joined: June 20th, 2007
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pkennedy says
The law profession is hardly one to look at for moral guidance. The best paid lawyers are the ones who specialize in defending well heeled crooks, filing class action suits, and filing malpractice cases. Merit is not an issue. Just like a prostitute, they will do anything if the money is right. But at least a prostitute will not knowingy send a innocent man to prison for 26 years, as to protect the “attorney client privilege” money maker.
Logan, who maintains he didn’t commit the murder, thought they were “crazy” when he was arrested for the crime.
Attorneys Dale Coventry and Jamie Kunz knew Logan had good reason to think that, because they knew he was innocent. And they knew that because their client, Andrew Wilson, who they were defending for killing two policemen, confessed to them that he had also killed the security guard at McDonald’s - the crime Logan was charged with.
http://www.cbsnews.com/stories/2008/03/06/60minutes/main3914719.shtml
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Wants 7/15 for $0K in 03101
On the third hand (?) the Fed is printing cash and giving it to the banks in exchange for mortgages that are never going to get paid back.
Isn’t there somewhere I can go with a gov’t that is not totally rigged to keep people in debt?
Debt is slavery. I try to explain that to people but all I get is a glazed look when I tell them a mortgage is just as bad as a credit card. I quit my job Teusday. I was rehired before I could leave the parking lot but I did say the words: “I won’t do it, so I guess I quit.” Sucks for the boss when his workers can pay the rent on their own. How many people can take a day off to fight a speeding ticket? Fight an injust tax levied without their consent?
That being said: My mortgage debt is 4.85%, which comes out to about 3.6% after taxes. I’m going to guess my house has lost about 10% value(refinanced last April and the appraisal was actually UP from where I bought) and will lose another 10% in the next 3-5 years but not planning on selling for 10+ years so not really counting on appreciation. I do, however, count on the cost of borrowing to skyrocket, so a loan right now at 3.6% is a no-brainer.
Joined: August 26th, 2007
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TechGromit, your analysis makes a lot of sense and one wonders how this is a anything like a good investment. Property is a drain on your resources until and unless you sell it, or get stable renters.
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Wants 7/15 for $0K in 03101
Everybody needs a place to live. If you can rent for cheaper than owning that’s great. If you get cheap landlords in a cheap building and you love it then great, but where I live that’s hard to do. My first apartment was 300/month heat/hot water included. People don’t rent houses. What we have are 3 decker apartment buildings that were built in the 1920’s in the worst part of the worst city in Northern New England. Go South and it gets worse. Go North and it may be better but the jobs aren’t there. Other than that you buy a house or go stupid and buy an apartment (condo).
Rent for a 3 br/1ba is about $1200/month, down from around $1400/month. You can get cheaper but good luck.
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4X says
I’ve heard there are anywhere from 3 to 7 Million “Zombie Homes” - where the mortgages haven’t been paid in more than 90 days, but the banks haven’t brought foreclosure proceedings.
What will be interesting is when local governments begin pressuring banks to take possession of abandoned homes because they are hard up for cash and will start demanding the Property Tax. We might even see cities and counties seizing the homes-in-Limbo from the Banks if they don’t get paid.
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Wants 7/15 for $0K in 03101
I was thinking about this on the way home from work yesterday, and I was trying to puzzle out how such an investment would work. .
They’re buying the notes. My guess is they sift through the mortgages and sell the paper to another bank after its been cleaned up. My question is how the Pension fund in Sweeden gets paid when this is all over.
Bank has no money
Bank borrows money from outside America
Bank lends money to homeowner
Bank sells loan to someone outside America
Homeowner goes belly up OR HE/SHE REFINANCES LOAN AWAYYYYY!!!!!!!!!!!!
Bank goes belly up
Everybody goes belly up but government saves the bank.
Banks sells loans to loan shark
Loan shark sell bank to bigger bank
Homeowner gets to rent his old house.
So where the fuck did the money go?
Joined: September 10th, 2009
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Here’s another scenario.
Person X gets Mortgage from Company A to purchase a home.
Six months later Person X gets letter from Company A that Mortgage has been sold to Wells Fargo.
Two years later Person X can’t pay loan and tries to talk to Wells Fargo.
Wells Fargo says they won’t talk until loan goes unpaid for 90 days. Not true - they call and harass Person X to pay - but won’t discuss any other options.
Person X tries to sell home and will have to do a Short Sale - but Wells Fargo won’t cooperate because for one thing “home is in California” so they think home is worth more than the mortgage. (This would have been a couple years ago).
Wells Fargo (in talks re Short Sale) lets slip that home is really owned by Freddie Mac and they have to ask investors before making any decisions.
Homeowner ends up going Bankrupt - but since they didn’t know who really owned the house - they put all the addresses they had for Wells Fargo in the Bankruptcy papers.
Now my question is?????
At what point/s was the mortgage sliced and diced into CDO’s? Was it re sliced and diced when Wells Fargo bought it, and then again for Freddie Mac? Why weren’t the homeowners notified that Freddie Mac owned the loan?
I know that Wells Fargo serviced the loan - but are they also doing the servicing for the foreclosures - and do they get paid extra for that service? If so - then that would explain their reluctance to help anyone.
When the banks sold their worthless paper to the Gov’t - how many times was this home basically sold (basically to us taxpayers)? And by which Banks?
When the Banks have to clear their books and take write downs - how many times was this same mortgage used as an excuse? And which Banks would be doing so?
Did Freddie Mac get any of the money when the house sold at foreclosure? The listing showed that Wells Fargo bought it and then sold for less than they bought it at Foreclosure. Why would they do something that stupid? Did they get paid to do that? And why was it Wells Fargo and not Freddie Mac?
If Person X listed Wells Fargo on their Bankruptcy papers - and their credit appears to be cleaned up - can it come back to haunt them since it wasn’t really Wells Fargo but some unknown Freddie Mac account or some unknown investors who really owned the mortgage - and what about the new homeowners?
The Banks are swamped because they have their priorities all wrong. They harass people who cannot pay unless they get some leeway - and they won’t help people who have put money into their homes - but cannot cough up enough cash to requalify for a new loan. And worst of all - their paperwork must really be screwed up.
And yes - where the heck is all the money going to?
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wish i was lucky says
Not sliced and diced. The bad mortgages were ” bundled ” into larger lots with other good and bad mortgages at that given time with vintage years and given control numbers for internal control and audit trail. As such anyone who bought them as “investments” would require details to support the ‘lot’ value they bought with individual mortgage/loans (actual documentation) . As such all balances would most likely require to be audited, reviewed, and approved before they were paid for by WFC. If WFC bought these loans they have internal controls and procedures to document “their investments.. or “loan receivables’ as if it was their own.
Their third party auditors, KPMG, would have also reviewed the CDO for completeness and accuracy.
Had all these CDO been lacking in details and supported contracts, all hell would have broken loose.
“When the Banks have to clear their books and take write downs - how many times was this same mortgage used as an excuse? And which Banks would be doing so?”
That is why companies spend millions in supporting their ERP Accounting Systems with staff and accountants to review the records.
“The Banks are swamped because they have their priorities all wrong.”
Dont confuse the collection department with the rest of the accounting department. You have segregation of duties to handle that.
As a depositor at Wells Fargo, I sure don’t want them to help the dead beat homeowners. And if someone can’t pay their loan… tough Charlie. I deserve to have my money held in my account returned.
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I guess my question is more like - does the first bank bundle the loan and sell it off. Then does the second bank do the same? Does only one bank buy the bundle with the loan - and do they buy the whole loan? Originally Banks used to make loans and either hold the loan or sell it off. We’re being told this time the loans were bundled and then somehow made into investments - so how is it so different if they were just selling them to other Banks?
At what point - or should I say - In what form - was the mortgage being sold as investments to other parties? Such as how does it affect someone’s retirement in Australia or somewhere because of their investments in our real estate.
You are right that the homeowner should have lost the house - but my other question is - Does Wells Fargo make money off doing foreclosures - or forcing foreclosures - Because we have read many articles about possible Short Sales where the sale would have covered 90% or so of the loan and yet Wells Fargo stalls off and ends up taking a huge hit (or whatever Bank actually owns the loan).
That part does not make any sense whatsoever. If Freddie Mac was the owner and that’s basically us the people - would we not all agree that selling the house for the loan amount before late fees got tacked on - or for just a $10,000 loss as opposed to a $100,000 loss makes sense? The priorities part is —- why was the Bank then even spending time talking and dealing with people who were trying to do Short Sales - when they had no intention of doing anything? If they spend money on their employees to have them string along people who are trying to sell their homes - then they must be getting something out of it.
I know they spend lots of money on the Accounting - and maybe they have gotten better over the years - but something is wrong at all the Banks if we got into this mess. If they all have perfectly good accounting - then please explain what our current problem actually is? And please explain how the Banks did not see things coming? Because perfectly good accounting would have showed it in glaring detail.
Joined: September 19th, 2009
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This may answer your question.
http://en.wikipedia.org/wiki/Mortgage-backed_security
Joined: September 10th, 2009
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I still have more questions.
Does the original mortgage company generally sell the mortgage straight to the GSE’s and then what the homeowners gets is just the info regarding the banks selling or trading the servicing rights? Why is the GSE never listed as the owner on the Deed and the Servicing Companies are only listed - and why is it so hard to prove who owns a house?
It would appear from this article that the Banks wouldn’t want to lose their servicing money - therefore they have no incentive to settle the debt with the homeowner - ie the short sale - or to renegotiate a better loan.
I’m guessing that many of the people who are looking to buy - Could actually buy a home at a reasonable price - IF - the Banks were actually trying to resolve this problem.
Instead it looks like the Banks are basically dragging things to the bitter end for the homeowners and then someone (an insider or friend or someone with lots of money) picks up the house for a really good deal and most of the rest of the people are left out.
So my next question is - If the GSE’s own the mortgages and the other Banks just service the mortgages - Then are all these Banks who service the mortgages telling the GSE’s the actual state of the mortgages?
When a Mortgage goes bad - then what percentage of the Foreclosure goes to the GSE and what Percentage goes to the Servicer? And since many banks aren’t even pushing foreclosures - what are they actually getting out of it by dragging their feet?
What I’m getting at - is this? If you have say a $300,000 mortgage and it goes bad? How much money does the Servicing Bank get to charge for the loan from the time the homeowner quits paying? How much does the Bank get for handling the Foreclosure? How much would the bank get if they renegotiate the loan or agree to a short sale? How much of the Foreclosure money actually goes to the GSE’s who actually own the mortgage? Does the GSE get the money when the other Bank buys the house - or do they get money when the house sells? How do they revalue the bonds they sold?
When the Servicing Bank buys the home at Foreclosure (because no one else wants it) - is that Bank actually buying it - or are they buying it on behalf of the GSE’s. If the Banks are buying the homes - then there is a potential for them to make a lot of money (or there would have been if the homes had been appraised properly).
So basically then - it would be that the Banks mislead the homeowners to get the loans in the first place and made money off the fees - and now they are forcing people to lose their homes and cleaning up on the back end - and sticking it to the tax payers while they make a profit even if it’s only more fees or servicing charges.
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I think a fair number of people out there who qualify (and deciding on qualification merits would be the big question)…..
should be given (legally) the option of short-selling, period, with no further penalities.
I’m talking specifically about people who did not buy speculatively, who put down some form of down payment so that they started with some equity - and who saw, through no fault of their own, the value of their purchase plummet.
Allowing them to short-sell, for whatever the market will come up with - allows them to unburden themselves from something that is not their fault….and I suppose the other side of the coin would be legislation that allowed them first dibs on the “deals” out there.
I suppose this nonsense could be avoided altogether, is markets were allowed to rebalance in such a way that mortgages were re-negotiated to present market values.
Of course, this is highly unlikely, because so many made off like bandits when prices were soaring.
Still - if the banks created the mess, they should have to clean it up.
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“Does Wells Fargo make money off doing foreclosures”
Dont see how, since they wrote the loans down or off completely and took the earnings hit in prior and current quarters. Most likely with RE loans inflated with prices, it would be too large to swallow up all at once. So they are simply spreading the write down for years to come.
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little planet said…
“I suppose this nonsense could be avoided altogether, is markets were allowed to rebalance in such a way that mortgages were re-negotiated to present market values.
Of course, this is highly unlikely, because so many made off like bandits when prices were soaring.
Still - if the banks created the mess, they should have to clean it up.”
The original money to fund the borrowing (the mortgage) came from the bank depositors, you, me, everyone else, your employers checking account (corporate accounts), and other institutions. What your describing isnt ‘present market value’, but complete forgiveness at the expense of depositors.
And every depositor would ask.. Where is my money ?
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“What I’m getting at - is this? If you have say a $300,000 mortgage and it goes bad? How much money does the Servicing Bank get to charge for the loan from the time the homeowner quits paying? How much does the Bank get for handling the Foreclosure? How much would the bank get if they renegotiate the loan or agree to a short sale? How much of the Foreclosure money actually goes to the GSE’s who actually own the mortgage? Does the GSE get the money when the other Bank buys the house - or do they get money when the house sells? How do they revalue the bonds they sold?”
As with any other corporation/small business.. each month their trade receivable is being assessed for probability of collectibility. This is also true with Investments. If a loan goes bad $300K, then a reserve for bad debt is made equally at $300K. Usually its items past 90 days. Im talking banks banks, many other corporations, and small business.
To renegotiate a loan, is in sense creating a new loan, and differences become loss to note holder (Bank).
In a foreclosure if the note holder is the bank than the proceeds goes to the bank, as recovery of bad debt previously written down. GSE, gets nothing, unless they are the note holder. There is no sharing of losses.
Bonds are valued at present value of future cash flow. http://en.wikipedia.org/wiki/Bond_valuation
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How can Wells Fargo write down a loan if they are only servicing it and Freddie Mac owns it?
How would it hurt Wells Fargo if they renegotiated even a better interest rate? How would it hurt them at all if they don’t even own the loan and are only servicing it? They basically were pushing the sub prime like mortgages and making it harder to get the fixed rates. People were being told they qualified for say 5.25% interest rates and then when the loan is drawn up - all of a sudden it was much higher and you had to pay extra money to get the interest rate they originally quoted - but they really tried to get people to take the ARMS.
It appears to me that the banks make money if they are only servicing the loans - and the GSE’s have the responsibility. If the GSE’s own 75% of the home mortgages or whatever the number is - how many Banks are even actually carrying loans? If all they are doing is servicing - then the only thing I could see is they would get docked for not forwarding the full payments to the GSE’s - and then maybe if the Banks got into trouble with their own investments - this could cause a cash flow problem. But without a full documentation of what the Banks are doing - I think there is a real possibility that the tax payers are getting charged more than once for a mortgage gone bad.
Maybe it should be made more open to the public how all this works. From what I have seen and heard - it appears that the banks were willing to loan to anyone who could breathe - but they made some people put money down (or the people chose to). Then when the homeowners get into trouble for whatever reason - the bank wants more evidence of money than even might be necessary for a loan - or certainly more than they required of the people who could fog a mirror - before they will help. And the more equity - or likely value to the house - the less likely they are to help.
By this reasoning the only two ways to buy a home would be to pay all cash or pay as little as possible. At least by the first method - you own your home. Provided you don’t get sick or get injured and cost over a $1,000,000 or whatever point the insurance drops you - and you don’t need to go into a care home - your house will then go to your heirs.
By the second reasoning - at least the bank can’t steal your equity and they will always have the house as collateral.
Joined: September 18th, 2009
Posts: 21
Comments: 191
Patrick says
On the fourth hand, The government is in the Land lord business now. So they can get the saps that screwed the deal to pay rent, while they keep the place on ice for the market to get hot again. Guaranteed YOY profits in Real estate for the banks.
I’m just waiting for the day that bites them in the ass. It will just be a matter of time, that the day will come. The market for what ever reason or forces is moving again. Either higher or lower. The banks will have hell to pay trying to excise these wards of the federal Hud system from these homes. They are going to probably have more rights than section8 rental tenants. They will be tenants of official Government buildings after all.
Joined: September 19th, 2009
Posts: 0
Comments: 211
“Maybe it should be made more open to the public how all this works. From what I have seen and heard - it appears that the banks were willing to loan to anyone who could breathe - but they made some people put money down (or the people chose to).”
Start with Wikipedia and look up GSE, Freddie, Fannie, etc, etc.. and also check the GSE’s SEC filings.
http://yahoo.brand.edgar-online.com/DisplayFiling.aspx?dcn=0000950133-09-000487
read the section 1 of the 10K.
Not the first time… you may recall the South American Debt crisis and Russian Debt crisis… there were lots of write offs then too.
Joined: September 19th, 2009
Posts: 0
Comments: 211
“By this reasoning the only two ways to buy a home would be to pay all cash or pay as little as possible.”
In California we saw median prices sky rocket over 300% (and on some homes 400-500%) in the past ten years… 1997- 2008. While inflation and incomes hardly went up 35% or so. We never had such price inflation in prior decades. Its not all about loans, banks or the GSEs. Its gets down to too much asking in home prices by the public that can never be supported by incomes. Everyone bought into the RE hype shoveled out by the RE industry: government, banks, and mass population. Ultimately, the we need to revert back to more responsible buying/lending pattern as was the case in early 90s.
Its the general buying public that needs a painful kick in the @$$ who wrongly think, and some still today, home prices doubling and tripling actually made sense. Why anyone would not bother to look at past sales history and ask simple questions ….. frankly our buying process for RE is broken and no one is trying to fix it. Im not even talking about banking and finance. We need simple guidelines which layout the whole bidding/buying process which would protect buyers and banks. Greater transparency and controls which reduce fraud and mismanagement.
It would be equally beneficial if government or some third party would publish 25 year trended data of metros and zips showing risky metros where median prices have digressed from inflation and incomes. The results should be a warning to the public and financial institutions. Once you isolate those regions, greater review/audits of risky can be assessed. We have seen since 1989 that the the higher appreciation above inflation/incomes ultimately results in financial distress.
Joined: September 19th, 2009
Posts: 0
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Joined: September 4th, 2007
Posts: 0
Comments: 6
Same story here…
Duplex for sale (tenanted)(hostile). Got inside to see it once. Put in an offer. Was one of 4 offers. Wait. Wait. Wait. 6 months later I’m the only offer. All others fallen away (withdrawn). Get a call, turns out it’s a short sale and there’s going to be an assessor assigned to the property in 2 weeks. Another month. Offer rejected. Next week another phone call… now reconsidering the offer. Bank will call in a few days…
Fast forward 1 month. Duplex reappears on the MLS with a new agent, new pictures and now has 7 ‘new’ offers. Would we like to be the 8th ‘back-up’ offer.
“Huhhh? What happened to my previous offer?”
No one knows.
This and many, many other stories of homes/houses with finance companies as RE Agents and the offers fall down black holes. There’s just no one there to receive them/process them.
Short sales are particularly hazardous as the banks don’t always state a target sales price. They just say “Bring the offers.” The agent guesses on a price, brings in the offers, and later the same week has to raise the offer price because the banks have rejected all the offers. So the agent guesses again. So some houses end up going to auction because the bank never sees a price they expect. This can take months.
If and when the price has been established between the seller and the bank. Turns out… you as the buyer has had any leeway robbed from you by the seller who has negotiated the bank down, therefore effectively stealing any negotiating power you may have. Basically the seller has shopped the banks’ bottom line. So it’s as-is and no discount for deferred maintenance. So it’s full price offers only.
Full price offers in this market??
Then there’s the problem if there’s a lien on the home. That needs a judge. More and more foreclosures have liens, 2nd and 3rd mortgages, which are a mighty mess and there’s just no way to stop them going to the courthouse steps.
Also… they’re over-stretched and most likely going off previous sale prices, or comps. Assessors rarely get to see the houses and even if they do the paperwork lies unopened on a desk somewhere. BAnks don’t wanna cop to the lack of equity on their books. With what? 117 banks folding this year alone, any bank left standing will be mighty indeed. So they hang on to the house, at least then they have wiggle room with the books. If they start moving the houses quicker… they realize the loss and it’s going to get ugly for them. I personally don’t see how hanging on to the houses in a falling market is going to help matters. Right now the market is stale STALE! I’m seeing the same homes over and over again. Just sitting. Something great comes up and wham-0 it’s gone in a blaze of offers. Then it’s back to the same unrealistic sellers trying to shop 2007 prices at us.
I have loads more to rant about, but I have to end it somewhere. May as well be here.
Joined: September 19th, 2009
Posts: 0
Comments: 211
http://www.hathaway-realestate.com/
http://www.hathaway-realestate.com/mortgage/700-billion-dollar-solutions…
The Proposed Solution
To solve the problem, we should start by halting any more taxpayer funds paid to any of the banks. We should mandate the banks liquidate a portion of their REO (Real Estate Owned, e.g. foreclosed homes that are now bank held properties) inventory holdings within 180 days. Any REO that has been on the books of the banks for longer than 200 hundred days must be liquidated within 60 days.
By requiring the banks to liquidate REO holdings, the banks are then forced to eliminate non-performing assets from their balance sheets. Liquidating REO’s will inject the supply of houses back into the market. The banks are forced to take actual losses on the poor investments they made. The banks are then placed in the same position as any other investor when a trade goes against their interest. Liquidating REO’s converts a non-performing asset into a performing asset in the capital market. By doing this there will be a shift of the risk of fluctuating (or further declines) in housing prices from the banks (who traditionally do NOT like assuming risk) to the market and investing public. Traditionally, banks do NOT like to assume undetermined risk. Furthermore, the marketplace exists to shift risk to the investor and has been the most efficient place to control and manage risk.
Joined: August 12th, 2009
Posts: 11
Comments: 158
When you borrow, you give the right to a bank to create the money that is loaned to you the moment you sign the paper. Deposits do not create the loan money, you do.
If you sign your name to a $300k mortgage, the moment the bank processes it, the money is created. The bank only has to keep a fraction of that $300k on reserve.
Hence “Fractional Reserve Banking”. It’s also why they are susceptible to bank runs and need to be able to borrow huge sums of cash lest they fail when confidence drops. The Federal Reserve’s primary role today.
The bank created the money for the loan out of thin air. The money did not come from deposits. They only need a fraction of the total money in loans they made to have reserves, and those don’t have to be all cash, either. Nor do they need the reserves at the moment the loan is signed. They can take care of that later.
Hence also “Debt based Currency”. New Debt creates more money. 95% of money exists only on banks’ balance sheets and electronically. Less than 5% of US Dollars physically exist. And also hence “Federal Reserve (Bank-) Note” on the dollar.
If there was no debt, there would literally be no money.
Joined: September 4th, 2007
Posts: 0
Comments: 6
thomas.wong87 says
Thomas… I like this one.
Joined: April 3rd, 2005
Posts: 365
Comments: 824
Wants 3/2 for $500K in 94025
I like Thomas’ idea too, but we have the huge practical problems that the banks have a louder voice in Congress than the people do, and that the Federal Reserve exists to protect profits of the biggest banks, and is mostly independent of Congress anyway.
The Federal Reserve has a useful function in lending during bank runs, but that function is needed only because the banks lie and say that your money is always available. It’s not.
It’s not just the bank that creates money out of thin air for lending. The borrower is essential, by promising to be a debt-slave to pay the interest on a certain amount of money. It’s the debt-slavery contract between bank and debtor that creates money. No labor, no money.
Joined: October 24th, 2009
Posts: 2
Comments: 43
Bap33 says
Is that for a year? Just curious.
Joined: October 24th, 2009
Posts: 2
Comments: 43
Patrick says
But how do you determine who those people were? Almost everyone that bought a house in Florida (probably goes for CA and AZ etc as well) between 2002 and 2007 over borrowed. Does that make them all foolish and irresponsible?
Joined: July 2nd, 2009
Posts: 2
Comments: 28
Wants 4/3 for $146K in 53540
So does that mean, if everybody does what I am doing- cutting up credit cards, paying off my home loan, and living debt free for the rest of my life, the banks will disappear from the universe. Or as John Lennon said, “Imagine”
Joined: September 22nd, 2009
Posts: 2
Comments: 288
Wants 4/2 for $170K in 95341
iggyman says
I guess the time frame for values to stick is still whatevr it always has been ,,, static until proven otherwise. So, unless “comps” cause the value to change, the value shall remain static without regard to time. Right?
Joined: October 24th, 2009
Posts: 2
Comments: 43
Bap33 says
I thought you were talking about lenders ’seasoning’ requirements. The rule always was a house was worth what you paid for it for a year regardless of the comps.
Joined: August 24th, 2007
Posts: 81
Comments: 903
iggyman says
IMHO, the “people who overborrowed” were those who bought more house than they could reasonably afford. The ones who predicated their purchase upon the ARM payment at the beginning interest rate, went Interest Only or NegAm. The ones who borrowed at 100% or more, figuring that they could always sell and make a profit because housing always goes up. House flippers, spec house builders who didn’t heed the signs, etc.
Then there’s the people who drank the koolaid, people who had homes and borrowed huge amounts to pay off credit cards so they could jack them back up, buy new cars, take vacations, etc. These are the people who overborrowed.
There are many victims of the recession - those who had jobs and lost ‘em, who were in “stable” fields and got screwed. Many of the people who worked in the Vegas entertainment/gambling field, for instance. Or construction workers, many of whom were employed for 20 years or more and suddenly lost their jobs. There are people who lost their asses over medical bills, or invested in the stock market or with a solid company (that, in turn, invested with Madoff) that never saw it coming.
Someone who bought a home that they could reasonably afford and lost it through no fault of their own, they’re victims of the recession.
IMHO, of course,.
Joined: October 24th, 2009
Posts: 2
Comments: 43
@ elliemae
Well put. I agree.
Joined: August 12th, 2009
Posts: 11
Comments: 158
Two new graphs from Realty Trak:
Joined: June 27th, 2009
Posts: 1
Comments: 59
Koolaid drinkers: Buyers and Sellers (the public).
Koolaid makers: Banks.
Koolaid allowers: Governmnent and media.
You can’t really blame all the koolaid drinkers. In fact, the Koolaid drinking sellers were actually performing their role in the Market. That is demanding as much as possible for their houses. We call that being a supplier. The koolaid drinking buyer’s job in the Market is to get the most house for the least amount of money. We call that demand. Now if all housing purchases were between a buyer and seller, we would have no real estate bubble. If a buyer could not pay the price in cash, the seller either 1) lowers the price or 2) find another buyer.
Enter in the bubble makers. I mean Koolaid makers. I mean banks. These supposedly smart money institutions say they will assess risk of and loan money to buyers so that they can purchase houses. The result is that sellers push to raise prices knowing buyers have access to bank money. What happens in this metality? Well, there is a transfer of risk in the market. Sellers, in setting their prices, are no longer concerned with how much the buyer can afford to buy, but rather their prices are based on how much banks are willing to lend to buyers. Buyers are no longer a check on Market prices because Banks have assumed that position. If banks concern themselves with risk assessment and long term profitability (i.e. interest on 30 year loans), then housing prices move up in a relatively slow manner in line with inflation and population. If banks concern themselves with short term profitability (i.e. fees on making loans) and ignore risk, then the leverage goes out of control, sellers do their job in the market by pushing prices higher, buyers are no longer a check on market prices, and *poof* you have a real estate bubble.
Government’s failure to regulate contributed to the problem. But, just because Banks were not prohibited from gambling away their money and thinking only of the short term, it does not mean they had to do it. By the same token, just because Elliemae has a rifle and can hunt more deer than she can possibly store in her freezers, it does not mean she has to kill more than she needs. However much that is.
Joined: April 3rd, 2005
Posts: 365
Comments: 824
Wants 3/2 for $500K in 94025
I love Ryan’s explanation, because it shows that “supply and demand” are not the most important factors. The most important factor was easy lending. By far.
Politically, it’s kind of interesting that the people who lost were those who don’t have any pull in Congress:
* young buyers
* foreign mortgage-backed bond buyers
* pension funds that bought the toxic bonds, like Calpers
* taxpayers
And the people who won were exactly those with the most pull in Congress:
* old sellers (they vote)
* realtors (the NAR is a huge lobbyist)
* Goldman Sachs
Of course, now they’ve screwed themselves (the old retirees can’t get any interest on their ill-gotten gains, nor can the realtors get commissions anymore) but I doubt they were thinking beyond the next dollar at the time.
Goldman seems to have won on the upside and the downside.
Joined: November 12th, 2009
Posts: 1
Comments: 5
I think the banks are not foreclosing on purpose, they rather not foreclosure.
So I heard from a friend, there is a asian couple, both spouses are still working, but they bought the house at the peak, then their home dropped by 300K, and they stop paying mortgage since beginning of this year, and the bank has not even kicked them out.
Joined: August 12th, 2009
Posts: 11
Comments: 158
Yes, three main reasons for that.
A) They don’t want to pay the property tax as the home won’t sell for months
B) They do want to have to sell the home at way less than the principal on the loan was for (big loss)
B2) And it’s not owned by the bank, who is merely servicing the loan but has to make payments to MBS holders/owners. Or can’t get permission to sell.
B3) The bank isn’t the owner or servicer anymore, and the company that is doesn’t know it owns it or pretends it doesn’t. Sometimes people get default letters from 3 different lenders saying each one owns the house in some cases.
C) They want to keep it off the market until prices go back up.
This is a classic Credit Bubble, not any different than South Seas Bubble, John Law’s “New Orleans” Bubble (there are nearby mountains loaded with emeralds, happy slaves, paradise on earth!), or Tulip Madness.
Greenspan is the culprit, he kept interest rates below 2% for way, way, too long. Wall Street had no complaints.
Joined: October 24th, 2009
Posts: 2
Comments: 43
@ Ryan
Hallelujah!! I really wish I had written that!