patrick.net

Where is my handout! I am so tired of being stuck with the bill for other people's mistakes.

Yeah, where is it?

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.