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which entity loses money when I foreclose on my house?
invite response
2011 Jun 22, 1:57pm 13,076 views 59 comments
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The actual loan underwriting process is *much* different and is very stringent these days. Your underwater house will be a big red flag when the underwriters make a deep dive into your finances. If they offer you a loan at all, the terms will look nothing like what you stated above; that I can promise you.
I keep hearing people talk about how tough the underwriting process is these days; can any of you give a first hand account of these difficulties?
I bought a house in 2005 that I sold in 2008; I put a contract in on a house in November 2010 and closed in January 2011 - my approval paperwork from the bank took LESS effort and time in 2010 than it did in 2005!
The reason it took 2 months to close was getting a new survey on the property, not anything to do with financing.
Schizlor
2011 Jun 27, 3:22am
One reason is that the realtor the bank hired to sell the house might be corrupt. The realtor claims the house won’t sell (ignoring the $400,000 offer) and then sells it to a friend for $300,000. Then they flip it at $400K and split the $100K profit. Bank loses.
This is correct. 9 times out of 10 it's not the bank being stubborn, it's the realtor being shady and giving the bank a haircut on the short sale (in addition to charging commission twice, on the SS and then the flip, instead of just on the SS) Many, MANY offers are never forwarded on to the owner and/or lender by the agent, because that person already knows who is going to buy the home (their 'investor' buddy) and will pretend their super lowball offer is the only one out there. (and again, as long as it nets the lender 88% of the appraised value, the bank will approve it) So the realtors are in a position to say "Ok, I know the bank will approve this at $180k, I have an offer for $205k, so I'm going to tell that 205 guy, "sorry, home was sold already", tell the bank the only offer out there is for $180k, short sell it to my investor friend for $180k, then resell it to the 205k guy once my buddy owns it, and we'll split the $25k."
It really is fish in a barrel for the realtor. They hold all the cards. They know the lender rules for approval, they know how many and what offers are out there as well as being able to hide offers from the owner/lender while at the same time telling prospective buyers that their offers were rejected, when in fact they were never shared with the owner or lender in the first place.
Short Sale should be between the owner and lender and nobody else. Agents shouldn't even be eligible for commission on short sales. But to leave this much latitude for them is just abhorent.
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I am trying to figure out why banks are not more willing to do serious loan modifications for homeowners who are strategically defaulting.
I understand all the previous govt interventions have been failures, in that they focus on people who are way overextended on credit, or have recent economic hardship, etc. So the few modifications that were done just delayed the inevitable, the people never had a realistic probability of paying the mortgage, and the money was wasted.
But none of the programs have focused on people who are the most underwater, the group I think is most likely to strategically default.
I bought a very modest ($200k) affordable house in 2007. I can still make the payments comfortably, but the house value is down something like 40% from what I paid. We are looking to move in the next couple years anyway, so just for kicks I went down to Chase and applied for another mortgage. They approved me for another loan roughly equal to my current loan, at 4.5%, FHA-backed, only 3.5% downpayment required.
So to me, this is a no-brainer. Wait till there is some significant stabilization in the local market, then jump ship. Get the new mortgage written, then call up Bank #1 and see if they're "willing to talk". I fully expect them to extend and pretend and eventually foreclose on the place, taking something like a 20-30% hit in the process.
A couple homes down the street have gone for $76k and $99k after foreclosures. The banks know that they will have to pay HOA fees, property taxes and insurance, and eventually accept a below-market value for my house if they foreclose. It is obvious to me that the banks don't want to be in the home-ownership business. Why aren't they willing to write down principal to near-market value for people threatening to default?
My loan was sold twice after securitizing and mergers, so I'm not really sure who takes the haircut when I bail out? Are the MBS held in bond funds that lose value when I default? Does BofA have to take the full brunt of the loss? Does the government take some part of the loss (mine is not an FHA loan)?
Please try to refrain on commenting of the morality of strategic default; I'm not interested in what you think of me personally and I promise not to tell you what I think of you! Just trying to figure out where the buck stops and why banks are slow-playing the default crisis instead of writing down principal.
#housing