Owners Stop Paying Mortgages, and Stop Fretting

[sofarsogood2]

This part is so true and not too many people realize it. When the government decided that every American should have a home, regardless of income, it put all of this in motion. I know a couple of people who used to be in banking, and have since left the business, who told me some of the policies in place, enforced by government regulations, that forced them to get people into mortgages. One mortgage broker we used, who worked for a home builder's company, told us she would sometimes be in tears after clients left her office because she knew that they could never afford the mortgage but she had to push it through as the government set rules which allowed them to be approved for a mortgage. She said had she denied them, even thought she wanted to, she could get fined and lose her job. I have heard similar stories from others in banking. She quit her job shortly after we met her, as she simply couldn't do it anymore.

It really was a perfect storm, consumers blinded by a desire to own property they couldn't really afford, banks driven by potential profit (and dare I say greed) to loan money out to anyone breathing, and government sanctioning and pursuading it all. That coupled with the appraisal system saying homes were worth much more than they really were worth.. The best part is that instead of the government stepping up now, and saying their underwriting policies were partly to blame, they are stepping back and blaming it all on the banks, while handing them money to bail them out. (Hush money maybe...)

Again:
That theory only applied if the bank held the note.

As we all now know, immediately after the loan docs were signed, the mortgages were sold off- letting the original lender off the hook-they made their money at the front end and then dumped the crappy loan into a security, mixed with a few "good loans", got it rated AAA, chopped it up and sold it to multiple schmuck Hedge Funds.

Oh yeah, they maintained the servicing rights, for the most part, so they could continue to profit until the loan defaulted.

The mistake the government made was allowing this type of activity (securitization of mortgages) to happen. Offering incentives to make loans to lower income families is hardly holding a gun to the bankers head. Their greedy little minds came up with a way to get the incentive, but bail out on the risk by selling off the loan immediately. They had their cake and ate it too.

If the old model of "you make the mortgage, you hold the note" existed, the crappy loans designed to fail would not have happened in the first place because the originators (like your friend) knew they would fail. Banks made the loans because they made money at the inception and then sold off the risk- not because the gov. held a gun to their heads

For those blaming the homeowner- we really don't know all the details but:
Placing the blame on some guy who's income, and financial acumen, is derived from getting pests out of your attic is a bit of a stretch, don't you think? His bank held his hand and willingly led him into a stupid decision, while their other palm was getting greased behind their back.

The bankers are college educated financial specialists. They should have known better.

So, yeah, I blame the originating bank.

[MarkM]

It is sad and the current voluntary "restructuring" process is clearly a joke. I am not particullary sympathetic to homeowners who treated their equity as a piggy bank -- but some of the slimy tactics by mortgage brokers deserve some scruitiny as well.

Personally, I think a limited form of bankruptcy proceeding to deal with under water houses is wayyy over due. Something like the following --

The homeowner could commence an in rem proceeding before a Bankruptcy Court. This would not be a traditional bankruptcy proceeding but rather an in rem proceeding specific to the home in question. The homeowner would have to certify the home is their primary residence, they have resided in the home for 3 years and made at least 2 years of payment on any mortgages on the home. Both lender and homeowner would be required to submit an appraisal of the home in question to the Court. The Bankruptcy Court would approve the terms and conditions of a new recourse 5/1 ARM loan with 30 year amortization for 75% of the current appraised value of the home with an interest rate set as if the homeowner had good credit. The lender would receive a purchase option giving lender the option to buy 50% of the home at the current appraised value. The lender would get a credit against the purchase price for the amount of debt removed from the mortgage. If any of the loans stripped off the house were recourse or would be non-dischargeable in a bankruptcy, the lender would also have an option to continue to pursue collection of the deficiency amount not credited against the purchase option. Once the debt has been restructured, I'd leave the ability to order a turnover in the event of default on the restructured obligation with the bankruptcy court.

Suddenly, both lender and homeowner have skin back in the game and hopefully can ride out the next 5 years while property values recover ...

[discouraged]

Thanks to all of you. I feel better. I finally quit paying my mortgage 2 months ago and am considering bankruptcy if I do not find a job by September - won't have the money for the BK until then anyway. I have 2 mortgages and the first one (BofA) is now saying they will work with me. Gee, I only applied for a mod last November and basically got the same runaround as researchnerd. The 2nd one, which is unsecured, is being VERY nasty - says they will get their money out of me, that they will take my house, etc.

Thankfully I have already talked to a person from our city's foreclosure prevention program who then set me up with a financial counselor who set me up with a BK lawyer so I know what to expect, but if I hadn't talked with them, he would have been very scary. I finally just politely said, "If I find a job I will be making payments to my creditors but until then there was nothing I could do." I then thanked him for his time while he was trying to say more threatening words and hung up.

Now I am just waiting until I have the money for the lawyer and try not to answer the phone. Sigh.

[Elgringo]

OK!!! RESEARCHNERD my is 8/26/2010 hope it will go well for us.
I didn't go to all the trouble of dealing with banks and credit cards after reading post after post on this website and others (NOLO)
Keep up the good posts for others to learn to defend themselves from predatory lending

[Elgringo]

Hey DISCOURAGED, you do't need a lawyer if you do you research well and have the time for it. it is complicated but you can do it. If you go to a lawyer it means to me that you will take the way out and will fall in the same predicament after this BK is over.

Educate yourself !!!! File yourself !!! Take control of your life !!!!