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I’m betting the bank will get a lot more out of this deal than the home owners. If the loan was 400K and it’s valued at 200K and they’ll get 170K after they foreclose, and resell (which I’m doubting they would even get.)
-6 months of missed payments, before they foreclose and get that person out of there-Legal costs
-Holding costs
-Reselling costs
-Taxes
I’m betting they will use inflated home values. That 400K home has only dropped to 250K, and the person will get a loan modification to that level. That will put them under water, but not so much that they’re a risk of walking away. They will be paying the absolute maximum for this house that the bank can get from them.
Instead of 170K or less, they’re getting 250K. They’re probably dropping that whole “non recourse†thing as well, forcing people into a much more difficult situation.
BOA also bought out countrywides loans for a fraction of their true costs, so BOA isn’t really losing anything. They’re taking the worst mortgages and trying to make them work. These were loans that they probably considered to be worthless when putting in a bid for countrywide. So in fact, they’re going to walk away with a whole bunch of money.
Those home owners are still screwed. They might have gotten off the hook by 150K, but they’re going to pay 70K more than “we†here will be paying the banks for the properties that were foreclosed on. Some people will have walked away with lots of equity loans, but the majority are probably not holding onto anything useful. We didn’t pay outrageous amounts of money monthly for years. When we buy here, we’re going to buy for far less than these people did, and we’ll have a decent down payment. Those people are still going to be living in poor conditions, paying for far longer than we will.
This isn’t “they got everything! I got nothing†they’re getting screwed as well, and they have been paying for it, and will continue to pay for it.
There are some that cashed out their equity completely, spent it, and made out like bandits if they walked away alreadyThere are some that sold before the bust and made out like bandits
The majority of the people who will get “help†here got screwed, and the bank is just finding better ways to keep screwing them.
People who walked away scott free are the ones who really hurt the tax payer. These might have hurt the taxpayer a bit, but in general they’ve hurt themselves far more, and now that we can buy those houses for 200K, we’re going to do much better than them.
You make some really good points here. The bank will almost certainly value the house too high and will end up profiting more because of the higher price. This has the potential to be a very devilish deal, especially if Uncle Sam has his hand out for tax off the debt forgiverence. The entire thing just stinks...
"The majority of the people who will get “help†here got screwed, and the bank is just finding better ways to keep screwing them."
Yep. Even the government programs to "keep people in their homes" are really not in the best interests of home debtors. What they really mean is "keep debtors paying".
The government is trying to protect depositors, and the financial system on the backs of home debtors. Better them than me, the tax payer, I say. If the government were truly on the side of underwater home debtors though, they'd be telling them to deed over their house to their lender and go rent.
It distorts the true market value, Mark — kind of like if a seller bids on his own stuff on Ebay; the end price is not a true reflection of the market for that item, but of a manipulated market. This is dishonest in my estimation.
Yeah, I'm all for more transparency in real estate, and FIRE as a whole. Much of the real estate industry is based on information asymmetry, and is not value adding - just wealth transferring.
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“No one can do what Countrywide can”!
Remember that happy and positive home loan campaign on TV. Month after month, year after year, it played on TV offering exotic home loan packages to many so that they could “tap” the equity in their house.
Not surprisingly, this slogan of lies and deception is still making promises. Somewhere in the cold dirt about 6 feet underground you can still hear the whispers. Even though Countrywide is now officially bankrupt (both financially and morally) and was taken over by the savvy Bank of America, it appears that there is a new round of bailouts that will be offered to select homeowners whose mortgage was originated with Countrywide.
If you have been paying your mortgage regularly every month as a contributing member of society, making good on your financial promises, living with Integrity, setting an example for the next generation and are perhaps feeling burdened by the tough financial times, then unfortunately you don't qualify. And as a disclaimer, for everyone who has lost equity, jobs and/or suffered financially due to this crisis, I fully sympathize.
If you have had to undergo or are facing a short-sale or foreclosure, due to a difficult financial situation and have a loan that is not originated with Countrywide, then again, I'm sorry but you don't qualify for what Countrywide can do!
Okay, let's get to the good news. If you bought a house during the peak years of the housing market, and used Countrywide Financial to get either a coconut, mango or passion fruit home loan then you pass phase one. If you still have a paying job but have decided that you no longer want to make your house payment, then you pass phase two. If you have been squatting in your house without making a payment to the bank and have been saving thousands of dollars for at least 2 months and for some even years, then you pass phase three. If you pass all three tests then please feel privileged! Countrywide, Bank of America and the American tax-payers would like to indulge you with your strong stomach of self-entitlement to the American dream. We would like to write off up to 30% of the money you owe on your mortgage principle.
Now wait, if you got an upside-down pineapple cake loan from Countrywide, where you willfully decided (or maybe were “tricked”) to pay for only part of the interest you owed every month, then hold on. The best is waiting for you. We would like to wipe out any mortgage debt you owe that is over the current value of your house. But we also want to give you a 5% bonus as a head start to your new mortgage. So if you owe $400,000 on your house and your house is only worth $200,000. We would like to give you a new mortgage of $190,000. After all, you made a wise choice with Countrywide and no one can do what Countrywide can!
#housing