Foreclosure Land

[BarbaraAnne]

I feel bad for everybody who loses their home. But that is the way the system works. I don't like some of the outcomes and I would like to see some gummint assistance to help them find alternative housing, but an orderly market demands that lenders be allowed to take collateral when loans go bad.

I agree with you. Unfortuately its not the person who gets the zero-down loan and loses his home that suffers. He throws back the keys to the lender and moves on. Just like those who run up credit card bills, file easy bankrupcy and get another credit card. No sympathy...no bailout. My comments have more to do with how it affects those whose homes lose a lot of value and who did put down the equity and are not going to walk their obligations. They are the ones who suffer as property values crater around them...through no fault of their own.

 

[Brat]

I think you are seeing a confluence of circumstance in the 'rust belt'. Heavy and auto manufacturing is not the employment engine it once was. Homeowners with a mortgage who lost their jobs in these areas are in a jam whatever the interest rate. The market for homes in their community is zilch so they can't downsize or move without abandoning their mortgage.

Cleveland has tried mightily to revitalize. Medicine is a big industry there, but the impact of the departure of other industries just keeps grinding away. I know two professional couples there, both on the cusp of retirement. Their homes were dirt cheap by west coast standards when they bought them, I just hope they can sell when the time comes.

 

[HelpMeRhonda]

DW and I experienced the Houston / Dallas bust of late 80s. Took out a $25k loan to sell our home. All toll lost $85+ k. Worked every hr of overtime I could to pay it off. Rented for 10+ yrs until we could afford a down payment again.

I certainly feel sorry for those in this situation, But I do not agree with the easy BK route of solving it.

 

[brewer12345]

I agree with you. Unfortuately its not the person who gets the zero-down loan and loses his home that suffers. He throws back the keys to the lender and moves on. Just like those who run up credit card bills, file easy bankrupcy and get another credit card. No sympathy...no bailout. My comments have more to do with how it affects those whose homes lose a lot of value and who did put down the equity and are not going to walk their obligations. They are the ones who suffer as property values crater around them...through no fault of their own.

Martha can comment, but it is never as easy and undamaging to the defaulting borrower as you seem to think. BK rules were changed recently and it is not easy or cheap to go BK. You also usually don't get much actual relief any more. And an awful lot of the zero down fols are people with families that will be out on the street. I do have sympathy for them. I just don't think they should blame the lender.

 

[wabmester]

I think I'll call my credit union today to see if they'll knock a couple percent off the interest rate on my ARM. I don't really want to pay the exhorbitant rate that I agreed to 2 years ago. In the spirit of equity and fairness, I think I'm entitled to at least a 2% reduction for the rest of the life of the loan. :

You might be surprised. The Fed is basically telling banks to focus on "work-outs" instead of foreclosures, so they can do some damage mitigation in this mess. Massive foreclosures would be a disaster.

link

 

[youbet]

He throws back the keys to the lender and moves on.

I'm curious as to what this actually means? Throw back the keys to the lender? I thought it meant defaulting on your mortgage and subsequently your credit rating going down the toilet. Can you walk away without consequences as this term seems to imply?

 

[crazy connie]

I'm curious as to what this actually means? Throw back the keys to the lender? I thought it meant defaulting on your mortgage and subsequently your credit rating going down the toilet. Can you walk away without consequences as this term seems to imply?

NOPE you pay for a long time on the default via your FICO score.

 

[haha]

But there is a basic level of personal responsibility required of adult Merkins. That includes understanding the terms of any financing agreements you enter into when you sign on the dotted line.

I think there is a real danger is doing bailouts all the time- the "Put" gets extended into more and more situations. But I also think that given this there is also a real responsibility for more government supervision for these businesses that can create such tragic personal devastation to people, and such instability in sections of the economy. Strict supervision should be linked at the navel with a slow hand toward bailouts.

As far as understanding what you sign, stop and think. Have you at times seen apparent difficulty understanding modestly involved issues even by people who were basically intelligent? Watch Jay Leno sometime when he goes out in the street to talk to people.

IQ was normed at 100; but the current population would not have a mean IQ of 100. One SD is 15; say the mean population wide is 93, a fairly optimistic guess. Since 2/3 of us are homeowners, there are people buying homes who could not understand the issues no matter how hard they tried! It could be explained to them by social workers rather than salesmen and they still could not understand what was really going on.

Consumer protection has gone to hell lately; and IMO the supposed remedy of going to court is a poor and inefficient one.

Ha

 

[wabmester]

NOPE you pay for a long time on the default via your FICO score.

I think you also get a 1099 for whatever portion of the loan was "forgiven." The "gift" of forgiving the loan is taxed as income.

 

[crazy connie]

You might be surprised. The Fed is basically telling banks to focus on "work-outs" instead of foreclosures, so they can do some damage mitigation in this mess. Massive foreclosures would be a disaster.

link

Thanks for the link WAB

This is a good thing. The old adage for the lenders is 1/2 a loaf is better than none. Also good for the hardworking people who get a reasonable intrest rate. Good for the communities with less forclosures flooding the market to depress prices.

Sometimes a modicum of common sense breaks through!!!

 

[justin]

You might be surprised. The Fed is basically telling banks to focus on "work-outs" instead of foreclosures, so they can do some damage mitigation in this mess. Massive foreclosures would be a disaster.

Maybe I should stop making tons of extra early payments, then skip a few months of payments. And move all my money out of my accounts there (so they can't exercise their right to offset against my assets). Cause I like paying less just as much as the next guy!

Seriously though, my CU typically offers to lower the adjustable rate rates if they are offering lower rates on new loans. I think they do the same with fixed rates. All you do is pay them $500 or $750 to "refinance" the loan at the lower rate. Not sure if you actually have to refinance it or not...

I could see workouts being more profitable than foreclosures. Getting at least something each month instead of having a ton of REO sitting on your books. Of course we all know that huge bureaucratic banks may not give their "work-out" folks the flexibility and authority to make good decisions for the company.

 

[REWahoo]

I think you also get a 1099 for whatever portion of the loan was "forgiven." The "gift" of forgiving the loan is taxed as income.

Yep. I've seen a couple of 1099's from credit card companies while doing my volunteer tax prep gig. The tax clients are none too happy to learn they owe taxes on debts that they thought were 'forgiven' and now behind them.

 

[brewer12345]

Thanks for the link WAB

This is a good thing. The old adage for the lenders is 1/2 a loaf is better than none. Also good for the hardworking people who get a reasonable intrest rate. Good for the communities with less forclosures flooding the market to depress prices.

Sometimes a modicum of common sense breaks through!!!

Ultimately lenders are rational and want the best recovery they can get. If that comes from extensions, they will do it. But either way, it ain't good for housing prices.

 

[justin]

I learned in my tax law class that the threat of sending out 1099's for deadbeat borrowers is a very powerful tool. You, as a lender, may not be able to squeeze much out of a deadbeat borrower. But give that deadbeat a 1099, and then let the IRS chase them down for the taxes on it. It's relatively easy to slither out of paying your unsecured debts to private parties. It's a lot harder when the IRS comes after you.

 

[uncledrz]

Risky lending--the lender side.
Default, foreclosure, economic and finacial distress are not good things for the individual suffering through them. They are good, however, as a part of our economic system. Risk. Risk that if you lend to a borrower who cannot repay you may have a default and you may have the property back. Risk that banks will no longer lend to you so that you can make riskier loans. Risk that your anticipated return may not materialize.
The government has an obligation to keep our economic system intact. It should be done by making sure the fully regulated institutions (i.e. banks) have sufficient liquidity to survive and to keep making loans to those with the ability to repay. It should not bail out every mortgage company. A few failures will bring sanity back into the practice of lending. (I still see DiTech advertising 125% load to value--so the excess, IMHO, is not yet out of the market).
Tio z

 

[brewer12345]

The government has an obligation to keep our economic system intact. It should be done by making sure the fully regulated institutions (i.e. banks) have sufficient liquidity to survive and to keep making loans to those with the ability to repay.

Well, you should be happy because that is what has happened. The banks were never allowed to get in as deep as the sleazebag unregulated lenders, so the banks are still in decent shape while the idiots running with scissors unregulated entities are drying up and blowing away.

 

[uncledrz]

Risky borrowing--the borrower side.
I do feel sympathy for the home purchaser who overextended and will suffer the consequences of the loan they took out. Children will suffer, families will hurt. Unfortunately, that is the downside of the housing boom. Time to tighten the belt, scrimp and save like so many before have, and come out of the problem in better financial shape than before.
We, as a nation, have had many ups and downs, booms are followed by busts. This is nothing different in that way than the 80's, 70's, 50's, 30's, etc.
Hard lessons.
Tio z

 

[Texas Proud]

NOPE you pay for a long time on the default via your FICO score.

The problem was that credit cards and other lenders did not care that much if you had a low FICO.... when my BIL was in BK, he was still getting many offers from different banks...

And as for throwing them the keys... if you don't have anything, what can they get It is the ones with 'other means' that get hit.. the ones like the poster that had to be out of a house for 10 years to get back to even... or the ones who could not sell because only the repos were being sold...

I also live in Houston during the bad times, but bought during that time.. the house I bought was 'discounted' by just shy of 50%...

 

[Moemg]

Getting sick or getting laid off seem like things you can and should plan for.


There is no way you can plan for all of the things life can throw your way .

 

[kathyet]

http://www.bloomberg.com/apps/news?pid=20601109&sid=an4wlQaDRorE&refer=exclusive

Homeowners, Lenders Skirt Default, May Curb U.S. Housing Slump

By Kathleen M. Howley

There are many reason for people losing their homes, loss of job, death, divorce, even not paying attentions to what kind of loan your getting. In any case this is happening all over the country and I personally think that some of these lenders should start to get a little creative on their end or else they will be left holding the bag....there is already talk of many mortgage lenders going belly up..that is no good for any one. Will it trickle down to all of us you bet, in one way or another.

I am not saying that it is all the lenders fault, but there were many lenders out there that let these "creative" loans go through that should never have gone through. The same thing with credits cards how many have gotten credit cards that should not get them, heck even dogs and babies have been issued them...

In one of the cases I know this couple had a 15 year mortgage a divorce happend and the lenders wouldn't allow the person left in the house to stretch the loan out for a longer period so they could make the payment on there own...on top of that come to find out, there was a clause in the morgage papers that said there would be an early pay off penalty. Clear case of the borrower not knowing what they signed, maybe, maybe not the husband got the loan she in trusting him signed it as well.. he then left his wife holding the bag....

 

[Texas Proud]

Kathyet...

I will give my opinion on the example...

Suck it up and refinance... your 'ex' screwed you... you have a choice... don't pay your full mortgage and eventually get repoed, refinance if you can afford it and there is equity in the house (not always!!!) and pay the fees (life lesson), or not ask for the house in divorce... give it to HIM...

Everybody always looks at the convenient way to get it fixed... and sometimes that is not available to you for one reason or another... so you move to option 2.. or 3...

 

[spideyrdpd]

I forget what they call it but lenders can just add the missed payments to the back of the loan. Although since there is Pmi they may better off foreclosing cause that means they get paid something today.
As far as the 1099 you can have that forgiven by the irs if you can show that you are trully broke.
Plus most people still qualify for the old bankruptcy where they forgive most of your debt.

I think the issue of the divorced people is that the remaining spouse cant refinance. They probaly already shot their credit and they dont earn enuff to get the house with just their income. Its how I bought some of my rentals....

 

[kathyet]

Texas Proud,
It isn't happening to me...so I don't have to "suck it up".

spideyrdpd,
I suggested paying only principle until they can get back on there feet, I think that is how they add to the back end of the mortgage. Not sure though.

The point is lots of people are going through this and unless the lenders try and work things out were all going to pay for it ...my friends have just walked away.... bad credit or not....come to think of it I have noticed a lot of empty house lately some have fore sale signs other have not...

In any case I have genuine sympathy for some of these families whether it is there own doing or not..

Here is something on the subject from John Mauldin I get his weekly news letter

http://www.frontlinethoughts.com/index.asp

Kathyet

 

[Texas Proud]

Texas Proud,
It isn't happening to me...so I don't have to "suck it up".

Kathyet

Kathyet...

Not trying to hit you in the chops... but read what I wrote... I said "I will give my opinion on the example...". I knew it was not you.. but you had put down an example of 'someone' and I was responding to that 'someone'..

I still think that many people get themselves into trouble and want to blame others for their problems... no, not everyone, but you see so many examples on the various shows and article etc. of someone who was a drug addict or whatever and now have turned themselves around etc. etc... a shining example of the 'human spirit'... but what about the vast majority of people who never got in that situation because they knew better... so they did not turn their lives around and are not shining examples... I would rather show children the later example than the former...

 

[tangomonster]

I (almost) felt guilty when we sold our condo in October (but we were desperate to sell and the buyer wasn't looking for financial lessons or advice from us). A very young guy, newly out of the service, no money for a down payment. Condo selling for $130K (definitely the cheapest housing in our area). He had a job, but it seemed like the (reputable, so far as I know---major company) mortgage lender had some doubts with his income to debt ratio and he had to get a note from his employer saying that he typically gets some overtime pay to supplement the regular income. The buyer's real estate agent also negotiated that we would pay a year of condo fees ($200 a month). It seems like this guy is cutting it very close. What if the overtime stopped/he lost his job/encountered some expenses with the 20 year old condo?

It seemed crazy that he was having trouble qualifying for the loan since the mortgage payments wouldn't have been that high on a 130K mortgage, even at a higher interest rate. Assuming he was earning in the 30's, you would think he could swing the monthly payments (he also is in the Reserve, so that's additional pay). And the mortgage payments were going to be much less than the $1000 rent these condos and similar apartments in the area go for. (There did seem to be a live-in girlfriend who could help with expenses, but her name wasn't on the mortgage).

In some ways, we felt he was crazy to be getting into this. Why not wait a few years and save up some money and get lower interest rates, not have to pay mortgage insurance, have the peace of mind of a nest egg to cover unexpeted expenses (the condo never has had an assessment, but at 20 years old, one could be coming...). In other ways, we sort of admired him because it usually is best to own rather than rent, so we envied his courage in going after what he wants. DH and I have always been way too cautious, which is why he waited until our thirties to buy an inexpensive condo.

Our buyer may not be the best possible example of an irresponsible person since he wasn't looking to buy a very expensive place. What slayed me was an article I read in a women's magazine about dealing with "adult" children. They cited one example of a 26 year old who wanted a $500K home. Parents are holding the mortgage for her. She pays them back a higher interest than they could get on CDs but has a very understanding/
forgiving lender if she has a shortfall one month and gets into more housing than she could have qualified for. Supposedly a win-win situation for both. But why the hell does a 26 year old need a $500K house? What is wrong in having a starter home and working her way up to a McMansion?