patrick.net

Governor, 4 big lenders agree on plan to stall high mortgage rates
Carolyn Said, Chronicle Staff Writer

Tuesday, November 20, 2007

Four major subprime lenders promised to give a break to California homeowners who cannot afford escalating mortgage payments, under a plan announced Tuesday by the lenders and Gov. Arnold Schwarzenegger.

Countrywide, GMAC, Litton and HomeEq - which collectively service more than one quarter of subprime loans to people with poor credit - agreed to maintain the initial, lower interest rate for some subprime borrowers whose rates are scheduled to jump significantly higher. To qualify, borrowers must occupy their homes, have made their payments on time and prove they cannot afford payments with the higher interest rate.

The voluntary program is designed to stem a huge wave of foreclosures. Half a million homeowners in the state have subprime mortgages that are scheduled to jump higher within the next two years after their initial introductory period elapses. Such loan resets, in combination with a slumping real estate market, already have led to a record number of foreclosures across California and the nation.

"With this type of cooperation from loan servicers, we can save tens of thousands of people from being added to the foreclosure lists," the governor said in a statement. "This common-sense approach does not involve a government subsidy or bailout."

It was unclear for how long the loan servicers would freeze the interest rates.

"The word that was chosen is it's for a 'sustainable' period of time," said Mark Leyes, a spokesman for the California Department of Corporations, which oversees nondepository lending institutions. "What does that mean? The answer is, it depends. It could be two years, five years, even seven years. The idea is until the housing market recovers. At that point, housing values would be restored; equity is restored, refinancing becomes an option. But nobody knows how long that's going to be."

Larry Litton Jr., chief executive of Houston's Litton Loan Servicing, said his company plans to expand the initial interest-rate period for up to five years.

"That gives us an ability to go in five years later and if the market has recovered and the consumers can afford an increased payment, the payment can be increased at that time," he said.

Freezing the payment rate makes economic sense for the investors who own the mortgages as well as for the homeowners, Litton said. Studies have shown that each foreclosure costs lenders tens of thousands of dollars.

"Property values are falling dramatically, primarily because there are so many foreclosures already on the market in some areas," he said. "Clearly, it is not good for our investors to have the real estate back. It feels like a no-brainer for a loan servicer to keep the payment where it is, keep another piece of real estate off the market and keep the borrower in the house."

Many subprime loans have initial rates such as 8 percent or 9 percent - already a premium on the going rate for people with good credit. But what about loans with initial rates as low as 2 percent?

"I don't have any in my portfolio," Litton said.

The lenders also said they would streamline the process for determining who gets the loan modifications. Many borrowers have complained that requesting a loan modification required weeks or months of phone calls and ended in a rejection because the criteria for income and credit rating were too high. Others have said they were caught in a catch-22: They could not qualify for a loan modification until they missed some mortgage payments - which hurt their credit ratings. Studies have shown that major lenders have modified only a small percentage of mortgages.

The companies also agreed to provide regular reports to the Department of Corporations on their efforts to reach out to consumers and on how many loan modifications actually occur.

"Overall I am extremely pleased that the issue of foreclosures is squarely on the governor's radar screen and that he seems to have extracted some important commitments from some very significant loan servicers here in California," said Paul Leonard, California director for the Center for Responsible Lending, an advocacy group. "That said, the devil is in the details. The monitoring and reporting on process is critically important."

-- A federal regulator proposes an incentive plan

for loan servicers who agree to modify lending terms to avoid default. C3

Who qualifies

If you have a mortgage through Countrywide, GMAC, Litton or HomeEq, you might qualify to have your introductory interest rate temporarily frozen. To get help, borrowers must occupy their homes, have made their payments on time and prove they cannot afford the loan's new rate. If this fits your situation, contact your loan servicer to apply.

Tim Iacono (http://themessthatgreenspanmade.blogspot.com/) met Patrick:

Patrick is gonna buy a few gold coins

I was able to sit down for about an hour or so and talk with World famous Patrick Killea of Patrick.net - I think I convinced him to buy at least a couple one-ounce gold coins.

When I used to work at a regular job, I would occasionally bring in two one-ounce American Eagles and place them into the hand of a co-worker and, while they felt the heft of the metal, I'd go on to explain how they are stamped "Fifty Dollars" on their face but you can get 15 times that amount at a coin shop.

Yeah, "Denser than lead", I told Patrick. I just wish I'd brought a couple of coins - I thought we were going to talk about housing but he was more interested in the Federal Reserve, money, money printing, and investments. It was a very pleasant talk.

This sounds like a great scam for the lenders. Very soon all of these variable rate mortgages will be attached to underwater investments. The longer the mortgage companies can keep these "money renters" in the underwater investments, the better. It would really be a shame if the underwater "money renters" gave the homes back to the banks. Then these poor "money renters" would turn into house renters. And cut their house payments in half.

econostag,

You might just be right. This is just window dressing on the party of lenders, and a way to postpone the bad news and spread the damage across a longer time frame.

I am hearing some things that lead me to think a reckoning is coming for brokers who sold liar loans. My husband has a client who is a mortgage broker (I've mentioned him before) that I think of as the quintessential "snake in a suit." I know for a fact this guy wrote up anything he could get his hands on whether the purchaser could afford the home or even understand the terms of the loan.

He was making money hand-over-fist the last few years and got really cocky. You'd think this guy invented the mortgage industry he was so smug. He built a huge new office and hired a ton of people--right at the very tip-top of the market.

It appears the bill is finally coming due.

Business has been crappy, as you can imagine, and he's had to lay a bunch of people off. I haven't heard how things stand on keeping the new offices, but I hear the offices are pretty barren. One of the brokers has just been sued by clients who are losing their home. If I remember correctly the loan was stated income and the clients are claiming that the broker put down phony information on the loan docs without their knowledge. I'm not sure how that works considering I just went through the loan signing process with an agent of the title company present, but I suppose the clients figure they have a better case if they can claim the loan agent lied--which he probably did at some point.

My husband's client claims that the lawsuit won't touch him because it's something one of his employees did without his knowledge, but I think that's naive. If the clients win, they're going to be going after company funds I'm sure. I also don't think his employee did anything without his tacit approval and I'm also betting the employee will point the finger at him if he thinks it will get him off the hook. It should be interesting to see how it all plays out.

And if that wasn't enough, he also put a bunch of money into some sort of "business venture" that a friend talked him into that was supposed to give him "double his money back." Yeah, I haven't heard that before. My husband was so irate when the guy came into his office to take the money out of his account to do it. He told the guy he was going to get hosed and that if he wouldn't listen to his (my husband's) advice he should take his account elsewhere. He still took the money out and lost all of it. Dumb-ass.

So my husband is trying really hard not to say "I told you so," but the fact is, he warned the guy about all of this stuff. It's hard to have sympathy when people create their own problems.

Incredible, but I don't necessarily blame the Gov. alone. My guess is that the LENDERS initiated this and then allowed Ahnold to take credit. CA is a HUGE market for these lenders and allowing thousands upon thousands of loans to go into default would be devastating for them.

They no doubt have seen the reset chart and are now doing the math. They couldn't care less about some FB or property values in CA towns (although the Gov. does). The lenders will simply have to go back to the HF's and explain if they demand the loans be repaid "as agreed" the borrower will most assuredly default and they'll be stuck with a rapidly depreciating asset!

So basically the state of California is in a "loan work-out". Look for more, but only in key demographic states.

SQT,

I know your husband had the good sense to well document his former clients actions. I wish I had a nickel for every time I've been dragged through that wringer.

This is a great example of how their industry operates. NO ONE is responsible for anyone else's actions! Period. (Never mind Mr. Bigshot got the lion's share of the fees from the loan HIS employee wrote)

Right now the standard "plea" is it was WALL STREET that created the problem by offering these toxic products in the first place! "Look, when buyers saw these loan products they wanted them, so either "I" can give it to them or they'll just go down the street". Yeah, isn't that the same defense drug dealers use?

Its meaningless pandering. Note this program is 'voluntary' and what they are describing is a type of loan workout which has been around 4eva.

A loan workout is a way to trick a chump into making payments on an upside down home since that is cheaper than foreclosure and what investor wants to foreclose on upside down home?

Lenders do not do workouts where there is any equity at all - they say 'sell'.

Its so funny because when you understand the workout guidelines this measure just screws FB's even MORE (assuming they are doing more workouts). The smart money is letting the bank foreclosure on hopelessly devaluing house with enourmous debt on it.

Amen HelloKitty!
It will be great when they start releasing the details of these freezes. They say banks are not in the business of being landlords. Ha! I am betting they write some balloon clause or negative amortization clause into these freezes. The simple fact is, people will be making the highest payments they can until such time as it is once again profitable for the banks to foreclose.
I suppose the only amusing recourse for someone that is that upside down would be to just trash the house.

Nothing like panicked ruling-class corporations to make politicians jump in. I wonder if Arnold will be vilified as much as Gray Davis was when this is all over.
Let's see, we're being screwed by PG&E because of Arnold's letting them off the hook and his previous under-reported collusion with them.
And because he's a celebrity, people, or more properly, as Patrick might say, sheeple, voted for him.
Better they would have voted for Mary Carey, at least she makes no bones about what her "profession" truly is.

HK,

I know you used to work in this arena and know the "work out routine" but I can't say as I would describe *not adjusting an adjustable rate loan as being all that common? I've heard of "forebearance" and adding to the payment until the arrears are caught up (or tacking them on to the end of the term) but this sounds like a new wrinkle.

As CA is a large part of any national lender's business they simply can't afford to have that many homes come back on the market at the same time. This is just a way to spread the defaults over several quarters or even years.

I'm sure if CA brought back Gray Davis all their housing woes would simply go away? Not... sure... where you're going with that?

Of course for Arnold there is the other little problem that this should also solve - keep people in their houses and they have to pay their property taxes right?

His revenues are currently going down significantly are they not?

HelloKitty Says:

> Its meaningless pandering. Note this program is
> ‘voluntary’ and what they are describing is a type
> of loan workout which has been around 4eva.

This is a non story since is only covers the small number of loans the banks have on their books (most have been sold in MBS pools) and banks have always made a deal with people that are underwater so they can get the cash flow and not have to deal with another foreclosure when the REO department is swamped…

Yeah I worked in loss mit during the last CA crash in the mid 90's.

Basically I had to say or do anything to get people to KEEP MAKING PAYMENTS on the upside down homes.

The only wrinkle here with Mr Freeze is that supposedly they are not adjusting the arm rate temporarily for SOME people MAYBE (if they want to and you are current on the mortgage and you prove you cant make the new payment).

It would appear to be a way to make a small dent in the delinquency numbers temporarily until you can sell your large mortgage company with tanking stock price to BofA.

Lets face it - if you foreclose on a house upside down 100k you will take a huge loss and if you can forestall the write down of that loss as far into the future as possible you buy time to to one of the following:
dump stock, sell company, get government to buy this junk rated loan (current loans are worth more! probably regardless of the subprime 'rate )freeze'

Indeed I would bet the whole scheme is to give mortgage companies time to arrange to sell these loans before the go delinquent and become impossible to sell - to the US Taypayer. Man those US Taxpayers are the dumbest people around, always holdin da bag!

Also you wonder whether they will just freeze the mortgage or write a special new one (CA is non-recourse for your first loan right)?

@SQT,

That's what we call "Karmic justice" around here! Thanks for the heart-warming story.

"always holdin da bag!" LOL!

As FAB suggests this is really no more than grandstanding and of little substance. Still it strikes me a little odd that we keep attributing all of these higher motives to the lenders or any of the REIC players for that matter?

Right now they're in a pitched battle for their very survival so their actions (I believe) are more guided by a day-to-day decision making level. These guys are so up to their eyeballs I don't think they have the luxury or presence of mind to do anything beyond basic knee-jerk, make it go away type responses.

Lenders do not do workouts where there is any equity at all - they say ’sell’.

Agreed, which is one of the reasons why "work-outs" were so rare over the past 6 years. As long as prices were on their 20%/year tear, why bother with a work-out? Where'd those NOD/NTS forms go again? Any time the banksters or government tells you we're here to "help", it's wise to start running the other direction --fast.

Here's a "work-out" program even people here could love:

Have the lenders/MBS note-holders agree to re-write the underwater loans setting the PRINCIPAL owed at 35¢ on the dollar. That is, if the mortgage is for $800,000, a typical price for your average 900sft L.A. shitbox, it's now instantly downsized to $280,000. Wages/rents & prices are now suddenly aligned, they're still paying on the loan, and nobody got evicted --win, win, right? Oh, and that new price gets recorded as a "new sale" in the MLS, so it becomes the neighborhood comp.

I'll buy THAT for a dollar!

Actually... by 1099'n the borrower for the to-the-penny amount forgiven it would offset his MID pretty much for the life of the loan.

Now... we're not taking away your MID! No, no. You're still getting it (you're just not getting any b-e-n-e-f-i-t out of it) It would further work out in that we'll have created (2) seperate classes of homeowners. Those that acted responsibly and are allowed full application of their MID and those that uh... aren't getting those great tax benefits!

I like it.

Nice addendum, DinOR! Makes a fine "work-out" plan even better (and karmically just to boot). Only downside is some FBs will scream "Don't 1099 me, bro!" But, hey, no government "gift" is 100% free, right?

Now all we need is a Lobbyist to draft it up for us in legalese and send --along with a campaign 'contribution' check with lots of zeros-- to Sacramento.

I think HelloKitty got it nailed. The whole Mr. Freeze scam is there to make underwater homedebtors keep making payments even though rationally they should just cut their losses and walk.

It's perfectly legal. Just ask anyone that's had to "income tax average". Sure, you'll get some huge write-off's this... year and with any luck they'll... mostly offset what you ALREADY owed! Notice I said m-o-s-t-l-y. Had they paid everything they owed on the day it was owed, there wouldn't be all those penalties and interest etc.

At that point it's between the Fed's and the state to tally up who gets what where Mr. FB's now non-existent MID is concerned.

Its hilarious to imagine that Countrywide would ever do anything to 'help' people unless it helped them more. Especially NOW when they have one foot in the grave.

Anyway there are standards for workouts and they are open to lawsuits and investor approval for any 'breaks' they give borrowers.

I hope there are class action attorneys reading and tracking all the 'happy giving away free money' statements these lenders are making. So when the losses mount they can use these as more leverage in court and say "look judge here is a record of countrywide giving away my investors money FREE! Clear breach of fidciary duty and contract!!"

justme,

I'll agree. For the most part the avg. FB is so ridiculously under water it isn't funny. As others have noted, when the RE mkt. was rock n' roll no one was too very interested in helping out recently divorced gals clinging to a home in a "hot" neighborhood.

But the HomeOwned have been making payments using their credit cards anyway, even at frozen rates they're all about to lose their $7 an hour jobs at Target, so if they were smart they'd sell-sell-sell and get the hell out.

Income and outgo must be at least on nodding terms.

They can cut their payments down to 1/3 maybe 1/4 by renting.

Where I am living now I can do better making $40 a day (hope I can snag that gig) at the local laundromat than I could ever do making well, I was up around $80k gross, in Silly-con valley.

I must say that the housing crash was A LOT more fun to watch before I realized the government would bail out banks and wall street with my funds, buy junk loan with my funds, and on top of that devalue the dollar massively as fast as they can.

Right now they’re in a pitched battle for their very survival so their actions (I believe) are more guided by a day-to-day decision making level.

DinOR,

Agreed. CFC's agreement to this lame-brain scheme just demonstrates the dire straits they are in. I think we should start a pool on (a) whether CFC will end up bankrupt/out of business, and (b) if so, when.

I'll start with yes, August 08 (after the 08 wave of ARM resets hits full stride).

Yeah, what HelloKitty said. Keep 'em making payments no matter what, talk 'em into just one more payment, just one more, and you're that much ahead before they walk away.

In 2004 I had a cell phone. It was $50 a month and I hardly used the thing. I never carried it, and in fact used the pay phone more than I used it. So, I called 'em up and wanted to end the plan - well, I was past the end of the plan and could just stop making payments at any time, but those bastards kept me paying 2 extra months before I caught on. I've not owned a cell phone since. I'll keep one for the 911 service if needed, and I have pay phones, borrow someone's phone, and ham radio if I want to talk to someone and I'm not at the house. I've kind of pledged to not give the cell phone co's another thin dime.

This is the same kind of thing the mortgage companies are doing - they KNOW you'll walk away because they know at least as much about your finances as you do, and they know you'll HAVE to walk away. In fact they know the sooner you stop paying 'em and keep the money in your pocket and go live in a Super-8 the better off you are. So from where they stand right now, if they can keep the sucker payments going for another month or another 6 months, it's just that much better for them than your just walking away.

@skibum,

Even Jane Wells of CNBC (very serious journalist) is expressing extreme doubt on CFC. I've been there and you're mind isn't racing. You're numb. You'll latch on to any "throw away phrase" you can get your hands on just so people will STFU.

Right now the mort. industry "thinks" they know what pain is. They have no idea.

I remember working in loss mitigation this one time a guy pissed me off by breaking so many payment arrangements. He would waffle between 90/120 days late (foreclosure dept would take over after 120 days late. But it never went to foreclosure because he would always send 2 payments and get back to 60 days late, then no money for 2 months and repeat.

So this one time he missed the deadline again and I had another 120 day delinq in my portfolio. So I mailed him back his 2 payments uncashed and sent his loan to the foreclosure department(yes the can do that sometimes! he was pulling my numbers down every month!) but they kicked it out of foreclosure when he called my supervisor and complained about me being a robot with no heart. (which is true of course, but the real reason they didnt foreclose was he sent money)

The bank only wants to foreclose if they absolutely have to, I was being selfing of course. He refused all the usual advice to catch up (sell your crap, get second job, take on roomate, borrow from some other chump, etc) and that pissed me off. There is no excuse to be 2 months late chronically, really if you want to keep the home sell your car and drive a junker to catch up your mortgage. Damn FB's.

HK,

Totally funny story. Yer' thinkin' this guy had learnt ta' milk the system just a little? I know my younger brother was 1 month behind for a whole year once. He'd recently become a single parent and without the extra income and 2 kids it was tough, but he got caught up.

What is different about this crash and its a MONUMENTAL difference is the dollar amounts involved now are staggering on every single home. Back in 96 a typical distressed borrower paid about 200k in late 80's and the home was worth 150k in the mid 90's foreclosure boom. 50k underwater (usually much less, that is the 'worst case') seemed like financial armageddon and 'ruined forever' to these people.

And anyone undwater 200k back then was a doctor or famous movie star who paid 600+ for thier home. We forclosed on a lot of them. A 600k to 1m home was exclusively for the wealthy back then. Today its for janitors, office workers, programmers, EVERYONE. There is simply NO WAY to ever recover from being 200k+ underwater - the old days of 20k upside being considered a disaster seem so silly and quaint now. But it was very very real, just 10 years ago people were upside 20k and getting mad at the bank, tearing out the counters and selling the toilets and walking away. for 20k. Being under 200-300k (which is probably average) will devastate the banks when they go to write off these losses after the foreclosures.

HelloKitty we *know* you're a robot, in fact you're a synthetic cute character invented under the name Sanrio, Sanrio because it's a word inoffensive and generally cute under all the major languages.

I love HelloKitty stuff!

Now, I like the neologism "selfing" but you should use it as in, you're "being selfish" or you "are selfing". I like that. Selfing. And I would advise the horrible, smelly, white-trash, deadbeat, El Camino-drivin', t'baccy-chawin' LOSER to just bail and I mean right away. Leave the banksters and RealtWhores hanging, or, hangin'.

There's no excuse to be 2 months late for a year, get out NOW and save your skins, rent a trailer or no-tell-hotel room and starve the oligarchy out.

If Carhartts and stray-cat stew are the path to freedom, then that path we should follow!

Yep Kitty I'm old enough to remember when $20k underwater was considered horrible, HORRIBLE.

Now $200k under is the new Little Black Dress.

I've managed to get $100k under and not even been owned by a house, just a small biz. And it may be $200k by the time they're done with the imaginary numbers on paper pertaining to me.

FB's certainly were casual about MEW'ing out 100-200k? Now they're walking away from it. See? Real... casual-like.

Perhaps folks in the mid-90's were exaggerating a bit, but it's definitely a set back. In my case to be "down" 200k my place would have to given away by the bank for free. So if they're giving it away, well then why not me?

This is illegal under some antitrust laws namely the Robinson Patman Act. It is illegal for a business to give preferential treatment to certain customers in a similar class; meaning that the opportunity for the lower rates is not available to everyone in the group no matter how the group is defined. This is so outrageous I hope it leads to some sort of revolt. I literally am shaking I'm so angry.

I want a recall NOW!

Happy Thanksgiving, everyone.

Thanks for:

- MEW
- FBs
- Alan Greenspan
- Hank Paulson
- Ben Bernanke
- David Learah/Lawrence Yun
- Hedge Funds
- America's debt addiction
- Realtors
- Shady mortgage brokers
- Goldman/Merrill/Lehman/Bear Stearns/Citi/WAMU/WF/CFC
- Angelo Mozilo
- Casey Serin