patrick.net

@CDW

This husband and wife are both 76 years old and English is their second language; they are natives of the Philippines. This couple believed in 2006 that they could “always refinance.” The reason they believed they could “always refinance” is because since “buying” their house in 1982, they have refinanced about 10 times and because they were also told by shrewd mortgage brokers that they could “always refinance”. Since 1982, this couple has overspent $345,000. Less than $30,000 of that $345,000 went into home improvements, and they still have the original carpeting in their house. Before 6 months ago, they had never missed a loan payment in their life and had “perfect” credit. Their Fico score was 750+. They can only afford on their retirement income about $1,435 a month.

This is unfortunate, maybe if they had of managed their money instead of financing their lifestyle with the equity in their house they would be in a better situation. I mean just who really were the predators in this situation, the bank or the couple who vacationed away their money? I am having a hard time showing empathy for these 2 seeing how they wasted away an opportunity to own outright. Nothing in the world is more dangerous than sincere ignorance and conscientious stupidity.

...tell them to walk away, move into a retirement home and to quit playing the victim card when they clearly made poor business decisions. It is not BofA fault or responsibility to tell them how to live.

...i mean, really just who are the predators in this situation. Good for BofA for taking advantage of these 2 stupidity.

"There's a sucker born every minute." (attributed to PT Barnum but...?)

Ohmigawd! I feel so bad for these people, who obviously made some horrible choices. If they hadn't refi'd 10x since 1982, they'd be paid off by now (or close to it). They're not native to the US, but that's no excuse because many immigrants aren't in the same financial boat. They can't afford to stay, even with the discount from BoA because it doesn't include taxes & insurance. They should throw in the towel and rent.

I wouldn't say that they were deceived - they could always refinance but the information was always there as to their choices; they chose not to be prudent. Sure, Countrywide & BoA potentially benefitted, but they loaned $400k on an asset that's now worth $200k and will be taking a $200k loss, or will be holding that asset for a long time waiting to recoup some losses.

They refi'd in 2006 -
"As an underwriter, I would have declined their refinance application in 2006 due to insufficient income, insufficient equity and excessive debt."
...yet you later say:
"If this couple would have sold their house and paid their debts off in 2006, they would have been much better off today."

Sounds to me like, if they had sold, they wouldn't have been any better off considering they had insufficient equity & excessive debt. They were hopelessly upside down at that point and riding the train to ruin - and Countrywide/BoA was stupid to lend to them.

"So this couple will never own their home, will never have a positive net worth, and if they do move the IRS will charge them capital gains tax on the loss BofA would have to take on the loan."

Am I wrong to assume that they won't pay cap gains because the IRS made a rule to forgive their transgressions as long as they bail before 2012. So, these people essentially will have received $350k to use as they pleased over the past 30 years without paying any income tax on it.
(http://www.irs.gov/newsroom/article/0,,id=174034,00.html)

cdw7503, you advised them not to drink the koolaid and they did. Surely you weren't the only person along the way to tell them this. My compassionate liberal social worker heart goes out to these people and I'm so sorry that they're at the point where they must make some hard decisions - but that time actually occurred somewhere within the first eight refinances, not merely the last one.

@ElliMAE

Why feel sorry for someone who obviously reaped the benefit of 345K in having cash money on hand?...what happened to being responsible?

I'm not sorry for them... I'm sorry that they're NOW at the point where they must make hard choices because they should have been at that point somewhere in the past 30 years.

I'm also sorry that I wasn't in the home loan game during the past 30 years and that I didn't live in their town and wasn't able to loan them money. Some lenders received tens of thousands of dollars in fees - I'm kinda sorry that wasn't me.

I'm sorry for all the lies I told you...
and I'm sorry for the things I didn't say...
But more than anything else, I'm sorry for myself... because my name ain't B-of-A.
(ripoff on a John Denver tune, my apologies to his relatives)

As an underwriter you take everything in to account: collateral, credit history and capacity to pay. If this couple was told that they have borrowed beyond their ability to pay back the money they already had borrowed, and that they had no option to refinance any more, then they could have made a better decision. They could have sold their house and paid off most of their debt and moved into a smaller more affordable house at $950 a month rent. Instead they were given a $1625 Alt A mortgage payment that did not pay enough for the interest due and did not pay for property taxes and homeowners insurance. This new loan was a loan they could never payoff and was completed because anti-predatory lending laws were being completely ignored by Countrywide and bcause these laws were not being enforced by federal regulators.

These laws were put in place to protect borrowers from themselves and from shrewd lending practices and to protect lenders from themselves. What we have found out now is that these laws also could have saved American tax payers from getting stuck with the bill.

Both the lender and borrowers here in this case were at fault for the situation they both find themselves in.

The question is how do we unwind loans like these that never should have been made? I believe that if the loan never should have been made then the lender should be required to reduce the loan balance and take a loss on the loan. The borrower has to take responsibity as well; they did have 3 days to recind the loan before it took effect.

The loan amount should be reduced to a point where a 28/34 DTI requirement can be met with a prevailing interest rate and 30 year amortization including taxes and insurance. This could leave the borrower still owing more than the house is worth. And since anti-predatory lending requirements were designed to protect borrowers from lenders from doing loans like this, it makes sense that lenders should have to take a loss and suffer real consequences from having made loans that take advantage of borrowers like this. But if neither the borrower or the lender suffers a consequence for the loans that exist presently and lenders are allowed to just modify existing loans without reducing principle and borrowers are allowed to live in houses they do not make payments on without the risk of losing their house via foreclosure then everyone in society loses.

The problem here only gets worse because the rule of law is not being enforced intentionally or is being ignored. Without the rule of law to protect the rights of both parties, who would want to do business in our country? And who would want to buy a house in this environment where the rule of law is not being enforced. If anything the federal government is doing everything in its power to preserve our lending institutions because now it has a financial stake in doing so. This means it has a financial stake in preserving as much of the bubble as it can which created all this misery in the first place. This is madness.

The law requires that banks and lending institutions that this happens to are required to be put into a recievership by law and the assetts sold off. This way the stockholders pay the ultimate price for the bad lending practices that led us to this point. The reason these laws exist is because waiting to unwind financial institutions that get into trouble will only make the problem worse, more expensive to taxpayers and that will be more destablizing to our economy in the long run.

cdw7503 says

If this couple was told that they have borrowed beyond their ability to pay back the money they already had borrowed, and that they had no option to refinance any more, then they could have made a better decision.

Once again, your original post asserts that you did tell them - and they ignored you.

cdw7503 says

The loan amount should be reduced to a point where a 28/34 DTI requirement can be met with a prevailing interest rate and 30 year amortization including taxes and insurance. This could leave the borrower still owing more than the house is worth.

So the bank should reduce the amount owed on this loan? Why not retroactively reduce the balance paid off on all the past loans - spread the financial collateral damage around... If the borrower is left with a home that's worth less than is owed, the incentive isn't to stay. It just means that they'll take less of a bath on a short sale.

If they reduce the amount owed to an affordable monthly payment, they should also take into account that the couple's life expectancy is substantially shorter than the average buyer. So they should make it a 10-year loan while they're at it. Where would it stop - they should have someone drive to the house & personally pick up the payment each month while they deliver groceries?

cdw7503 says

But if neither the borrower or the lender suffers a consequence for the loans that exist presently and lenders are allowed to just modify existing loans without reducing principle and borrowers are allowed to live in houses they do not make payments on without the risk of losing their house via foreclosure then everyone in society loses.

So - where do you propose the money should come from - creating a way to enforce foreclosure actions by banks seems to be adding another layer to our already stressed economy. There's a risk for borrowers to lose their homes, lenders are behind but they're happening... The lender should figure out what they'll do, but anything short of evicting the couple is a dumb move IMHO.

This couple made poor choices for 30 years. They had all of the information they needed to make informed decisions and chose not to do so. The lender gambled on them and also lost. This deal is between the buyers & the lenders - and certainly a better example of how predatory lending exists than this couple's story.

If by some chance (some grace of Gawd) they can recover, have their loan reduced to an affordable amount and remain in the home, they'll find yet another way to lose it (borrowing for a car, private lender, credit cards... the list goes on).

cdw7503 says

These laws were put in place to protect borrowers from themselves and from shrewd lending practices and to protect lenders from themselves. What we have found out now is that these laws also could have saved American tax payers from getting stuck with the bill.

Both the lender and borrowers here in this case were at fault for the situation they both find themselves in.
It's the failure of the educational system that help cause this mess. When I went to school we had Math, English, wood working shop and even a home ecomonics class to teach students how to cook, but nothing about basic finances or investing. Laws are put into place for people who know how to use them. when someone is selling you something, weather it's a TV, house or a Mortgage, they are sales people. It's not in the best interest of sales people to educate you that that could get a cheaper TV from the store down the block or this TV brand really sucks. Same is true with Mortgages, they are not going to tell you the mortgage is financial sucide, they are looking to make a sale. It's up to you to educate yourself and make the right decision when buying a TV or a house weather it's a good deal or not. Not the Sales people, I'm really sick to death of hearing about how banks took advantage of people. It's the people who took advantage of themselves. With a little reading and a calculator it be easy enough to see if the mortgage was a good deal or not.
cdw7503 says

The loan amount should be reduced to a point where a 28/34 DTI requirement can be met with a prevailing interest rate and 30 year amortization including taxes and insurance. This could leave the borrower still owing more than the house is worth.

That's a wonderful idea, let's reward these moron's for there stupity. These people obviously lived above there means for years. They have to face the music, everyone loses in this situation. The bank will never recover 200k of cash they gave these fools, there own fault really, for giving the loan in the first place and these fools will lose there house, and they should. weather English is a second or third language, common sense isn't restricted to people who can speak English.

elliemae says

Am I wrong to assume that they won’t pay cap gains because the IRS made a rule to forgive their transgressions as long as they bail before 2012. So, these people essentially will have received $350k to use as they pleased over the past 30 years without paying any income tax on it.
(http://www.irs.gov/newsroom/article/0,,id=174034,00.html)

If I ran a bank I'd hold this crap on my books until after 2012 than claim it as a loss, in order to shaft these people with IRS Cap gains. I think is unfair the some people should escape cap gains with a temp rule change. If it's an unfair rule, it should be abolished for everyone forever.

Why feel bad for them? They took out 345K and spent it, and if they would have paid off the traditional loan, they would only have about 250K, (the value of the house), less whatever they still ower(3 years worth of payments), less closing costs and realtor fees. They made over 150K more than their investment. Let the bank take the house. Good investment for them really. Would you take a credit hit for an extra 150-200K right now? You pay me 200K, I'll rent for 10 years until my credit recovers no problem. Shoot I'll put that 200K in the market after it corrects a little here (say to 8500 or so) and it'll be worth 500K in ten years.

elliemae,

Anti-predatory lending laws were laws designed to prevent lenders from taking advantage of borrowers. Anti-predatory lending laws do not apply to borrowers at all. We as a country must decide are we going to have anti-predatory lending laws or not? We haven't decided yet. And this makes our country an unstable place to do business because we will not enforce basic financial laws on our books.

Was this couple stupid for taking this loan? yes. But the experts on loans and lending is and will always be the lending instituitions themselves. Lenders who lend in to a financial situation such as this one do so at their own peril of losing money and getting sued over anti-predatory lending practices. The money lent out is already spent and gone. A loss only occurs if a financial instituition is still viable and trying to make a profit in the near future. For all intensive purposes, our largest banks are making very few loans because they are hoarding cash to try to survive the onslaught of massive loan losses coming. And these "too big to fail" banks will need more money to cover the losses they will have in the future because they are failed instituions right now and will never be able to survive unless the federal government gives them a blank check for all the losses they will have for the next ten years. Stockholders in the financial institutions are the only ones who have not had to take a total loss for these horrific lending practices...and that is wrong. So if these "too big to fail" institutions were to be dismantled by putting them into recievership etc what harm would it do? Would they stop lending? They already have stopped lending.

What we have right now is marshall law in the financial sector of our economy because our "too big to fail" financial institutions do not want to fail and they have more than enough influence in Washington to prevent existing banking and recievership laws from being enforced. The banks have already failed. The question is how much money will the American public be stupid enough to give these failed Banks before we realize that we have been screwed and will continue to be screwed by allowing this to continue?

In the meanwhile, we should stop blaming the borrowers who were absolutely lied to so they would sign on the bottom line.

@David 1

Why feel bad for them? They took out 345K and spent it, and if they would have paid off the traditional loan, they would only have about 250K, (the value of the house), less whatever they still ower(3 years worth of payments), less closing costs and realtor fees. They made over 150K more than their investment. Let the bank take the house. Good investment for them really. Would you take a credit hit for an extra 150-200K right now? You pay me 200K, I’ll rent for 10 years until my credit recovers no problem. Shoot I’ll put that 200K in the market after it corrects a little here (say to 8500 or so) and it’ll be worth 500K in ten years.

Exactly what I was thinking, except these people did the exact opposite and bought material items and vacations that did them no good financially.

cdw7503 says

Anti-predatory lending laws were laws designed to prevent lenders from taking advantage of borrowers. Anti-predatory lending laws do not apply to borrowers at all.

You make no sense. At all. Not even a little bit...

Your argument is that you're offended that BoA will accept some money while they figure out how not to get screwed so bad - so what? Some is better than none. About the couple, you say "All they really need is a 2 bedroom, 1 bath house right now; the rental cost of a 2 bedroom 1 bath house or duplex in Sacramento is about $950 a month..." Rather than blame the lender, why not blame the builder who built a larger home than they needed? Or the Realtor who sold them more home than they needed in 1982? Perhaps the travel agents who sold them trips or salesmen who sold them whatever they purchased with all the money? Losing their home would be a consequence of their choices & actions, not a punishment of their behaviors.

These people can - and should - walk (run) away and move somewhere they can afford. The bank is taking a huge bath on the property (and, btw, it's not even the bank that loaned them the money in the first place...) because housing values dropped and BoA's left with a still-depreciating asset. But there is nothing in your OP, nothing in your replies, that leads me to believe that these borrowers were victims of predtory lenders - they were dumb. They over-extended, willfully and knowingly (you told them not to in 2006, and I doubt you were the only one to do so) and they benefitted to the tune of $345,000. And yet you assert that they're somehow the victims. Nah.

Your logic just doesn't work for me.

cdw7503 says

In the meanwhile, we should stop blaming the borrowers who were absolutely lied to so they would sign on the bottom line.

No one lied to these people. Ten different times they were provided with written information that clearly told them the costs - and benefits - of their many refinances. Some of that written information advised them that they'd lose their claim to the collateral if they didn't pay - and they willingly signed it. No fraud, just stupidity.

"As a former underwriter, I have seen this scenario play out over and over again here in Sacramento. That’s why I have rented since I moved back to Sacramento in 2003."

I have an idea - how's about all the renters who've paid your payments on time and didn't drink the koolaid get first crack at the foreclosed homes? How about someone rewarding me for paying my house payment on time by giving me my home?

I respectfully reserve my righteous indignation of the way that some homeowners were mistreated for people who lost their jobs through no fault of their own, or who suffered severe financial set-backs due to circumstances beyond their control. Like huge medical bills. Or even those who attempted to start a business that failed in the bust. My heart goes out to people who are collateral damage.

Not to the people whose actions, along with those of the lenders, can be directly attributed to the current economic crisis in which we find ourselves.

cdw7503 says

In the meanwhile????????

I just couldn't resist. In the meanwhile, that is...

@elliemae

I have an idea - how’s about all the renters who’ve paid your payments on time and didn’t drink the koolaid get first crack at the foreclosed homes? How about someone rewarding me for paying my house payment on time by giving me my home?

I second that notion, why are we rewarding stupidity with 8K tax credits when we should allow those that followed the rules to prosper!!!!!!!

@CDW

Do me a favor and buy a 400K house in the next 6mos, then in 2 years report back on how much money you loss and how the banks ripped you off. Then go enjoy your cottage for the next 10-15 years while you attempt to recoup that equity.

ROTFLMAO

@Elliemae

I respectfully reserve my righteous indignation of the way that some homeowners were mistreated for people who lost their jobs through no fault of their own, or who suffered severe financial set-backs due to circumstances beyond their control. Like huge medical bills. Or even those who attempted to start a business that failed in the bust. My heart goes out to people who are collateral damage.

Watch it Elliemae, the socialist police are watching...I hear some Marxist sentiment in those statements. LOL

4X says

Watch it Elliemae, the socialist police are watching…I hear some Marxist sentiment in those statements. LOL

My ass is too big for one label to adequately cover it.

elliemaee,

There are two different issues here: What borrowers rights are and what lenders rights are. You may not like the rights that borrowers have, but they are the borrowers rights nontheless.

The one thing that underwriters in a normal underwitting environment must consider is the worst case senerio of a potential borrower. Is there enough collateral in case of default, does the borrower have the capacity to pay back the loan on the terms that is being offered? Lenders assumed as did borrowers that the RE market would continue to go up in value forever and that you can always refinance. Neither of these came to pass. So it is as is always the case that the lender is stuck holding the bag for the underwriters (and borrowers) mistake.

A borrower always has the right to file a bankruptcy and can be absolved of most debts except for some taxes and student loans. In some cases, that means that the borrower must surrender the Real Estate if the security interest of that real property has been perfected by the lender and the borrower can not make payments that would cure the default. In this case the borrower is essentially bankrupt because they can not fulfill their obligations under the promissory note they signed. This is the why the lender is screwed unless they can recover their losses via foreclosure.

Like my mentor in underwriting said: "you can't make chicken salad out of chicken sh**." Unfortunately the mortage lending industry tried to make chicken salad out of you know what and now we see what happens when there are bad mortgage loans made because laws and regulations are ignored by federal regulators.

Our banking and mortgage industry will continue to be an unstable place to do business unless and until laws and regulations are enforced and sanity returns to underwriting standards watered down by the free for all standards that still exist today.

@CDW

Our banking and mortgage industry will continue to be an unstable place to do business unless and until laws and regulations are enforced and sanity returns to underwriting standards watered down by the free for all standards that still exist today.

Have you heard of Obama proposing any legislation?

cdw7503 says

Our banking and mortgage industry will continue to be an unstable place to do business unless and until laws and regulations are enforced and sanity returns to underwriting standards watered down by the free for all standards that still exist today.

So, hows about you provide us with a better example than this couple? One who wasn't advised differently, didn't refinance ten times, and suffered a life-altering event that changed their ability to repay the loan? One who deserves the opportunity to modify a loan to something that's affordable - and who might possibly repay that modified loan?

There are soooooooooo many examples out there, and they're heartbreaking. On second thought, you don't have to do that. We have imaginations and this thread mirrors so many out there that blame the lenders.

In the lending industry, you have to assume that people who apply for loans do so because of a selfish interest and that they would take a loan even if they know they will not be able to pay it back. When I was underwriting loans for Commercial credit I approved one in 25 applications. And those 24 who were declined thought they deserved to have a loan approved.

The responsibility of determining who gets lenders money always resides with the lender. The lender always has the most at risk. So of course it is the lenders responsibility that this mortgage crisis happened. The victims here are obviously the borrowers. Stop blaming the victims. Borrowers ask for help when they apply for loans. It is up to the lender to decide whenther it is in best interests of both the applicant and the lender to make the loan.

@CDW

The responsibility of determining who gets lenders money always resides with the lender. The lender always has the most at risk. So of course it is the lenders responsibility that this mortgage crisis happened. The victims here are obviously the borrowers. Stop blaming the victims. Borrowers ask for help when they apply for loans. It is up to the lender to decide whenther it is in best interests of both the applicant and the lender to make the loan.

So how do the lenders have any responsibility when FHA insures these loans with tax payer money?Your wrong on this one if you think these peopl are victims, they have the responsibility to research their investment before jumping into something without any expertise.

cdw7503 says

Our banking and mortgage industry will continue to be an unstable place to do business unless and until laws and regulations are enforced and sanity returns to underwriting standards watered down by the free for all standards that still exist today.

I disagree. I don't think more regulation is required, what is required is for irresponsible businesses (banks) to pay for there mistakes and not get bailed out by government. This only encourges them to take even bigger risks in the future. If there is no down side there what pervents them from doing it again? If I go to the casino and gamble my money I could end out winning a lot of money, but if I lose, hell the government will bail me out. Initial bail out money came with no strings attached, and what did they do? They went on a shopping spree by buying other troubled banks. When we prop up failed businesses, we continue to get bad business decisions. The bailout money would have been better spent shoring up the FDIC and banks that failed would have been covered by the FDIC. Despite all of these business that have been bailed out by the government continue to give billions in bonuses to there employees, a Failed business will continue to make failure business decisions. Let them die already, lets worry more about how to pick up the pieces after the collapse then to add a few more supports to this collapsing building.

TechGromit says

cdw7503 says

Our banking and mortgage industry will continue to be an unstable place to do business unless and until laws and regulations are enforced and sanity returns to underwriting standards watered down by the free for all standards that still exist today.

I disagree. I don’t think more regulation is required, what is required is for irresponsible businesses (banks) to pay for there mistakes and not get bailed out by government. This only encourges them to take even bigger risks in the future. If there is no down side there what pervents them from doing it again? If I go to the casino and gamble my money I could end out winning a lot of money, but if I lose, hell the government will bail me out. Initial bail out money came with no strings attached, and what did they do? They went on a shopping spree by buying other troubled banks. When we prop up failed businesses, we continue to get bad business decisions. The bailout money would have been better spent shoring up the FDIC and banks that failed would have been covered by the FDIC. Despite all of these business that have been bailed out by the government continue to give billions in bonuses to there employees, a Failed business will continue to make failure business decisions. Let them die already, lets worry more about how to pick up the pieces after the collapse then to add a few more supports to this collapsing building.

So should we take it that you believe Patrick is lying when he stated that Gramm-Leach-Bliley is the root cause?

elliemae says

4X says

Watch it Elliemae, the socialist police are watching…I hear some Marxist sentiment in those statements. LOL

My ass is too big for one label to adequately cover it.

We like big butts and we cannot lie.