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By Moe Bedard (broken link) on April 14th, 2008
The word is out and the banks and servicers need to get a clue. People are walking from their underwater homes in droves. What was once taboo has become the “smart” thing to do for many Americans.
This rhetoric that 50% of homeowners do not speak with their lenders or servicers is actually true.
But it isn’t because they are too scared to pick up the phone. Oh no! They have made the sound decision to swim to the top of the water in their homes, grab their families and belongings, get in the “rental boat” and then shut the proverbial foreclosure door. All without so much of a peep or squeak.
Lenders used to use foreclosure as a scare tactic. Now, it’s nothing more than a solution for people’s misery that were once strapped by the debt, ball and chain known as their home.
Federal Reserve Governor Randall Kroszner said this past Wednesday:
“The fact that many troubled borrowers have properties that are now worth less than the principal amounts … suggests that lenders and servicers should give greater consideration to the use of principal reduction as one of the loan modification options in their tool kit,” Kroszner told the U.S. House of Representatives Financial Services Committee.
Hope Now’s efforts have been getting bashed lately and more hints that many actions taken by lenders thus far, such as placing homeowners in repayment plans (all 800,000 plus of the 1.2 millions helped) are just prolonging the inevitable pain and proving that these lenders and servicers do not have a clue when it comes to loss mitigation in today’s foreclosure environment.
“[Repayment plans] put more loans upside-down,” said Jim Carr, chief operating officer for the National Community Reinvestment Coalition. He adds that these fixes make it more likely that borrowers will walk away from their mortgages (broken link) if they get behind again, since they have no equity to lose.
Carr pointed out that, Hope Now’s claims not withstanding, foreclosure rates continue to soar. “We’re en route to possibly 2 million foreclosures this year alone,” he said. “It’s so important that, rather just putting out stats to look good, that something is actually accomplished.”
Lenders have created an environment where the threat of foreclosure means nothing. In actuality, bailing out on your sinking home actually makes sense to more and more people that don’t want to go down like the Titanic.
Hell, just put on the rental vest and dive in, it’s not so bad and the schools are just as good as Johnny’s!
Let’s face it, many borrowers (people) put little or no money down, so they don’t have much skin in the game. With little skin in the game, it only makes sense to leave while you have whatever skin you have left in tact.
Why keep making payments on a home that is severely underwater and is not going up anytime soon?
The other threats of ruined credit and deficiency judgements are just hollow threats.
Listen here everyone, people can’t eat or sleep because they are so worried about paying their mortgage and losing their home. Now, they are starting to realize that just letting go is the best thing to do to keep their families together and sanity in tact.
Many will choose to stick it out and fight by trying to obtain loan modifications from their lenders. Often these are people who have strong ties and memories in their homes. Skin in the game and a lot to lose. I hear from these people every day in my forum. Their stories are heart wrenching and plights commendable.
However, the immediate pain of just biting the foreclosure bullet and walking away is better for some. Better than the prolonged agony of dealing with bottle-necked lenders and employees who were a week ago at Wall Mart or better yet, in India in a sweat shop.
The Mortgage Debt Relief Act of 2007, is a consumer protection act that gives homeowners all the more reasons to walk on their homes and loans. Especially the ones who were once on the fence.
Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return.
The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).
The debt must have been used to buy, build or substantially improve the taxpayer’s principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision.
A couple forms and a U-Haul is all you need to walk. Wow! FYI banks - You better get a clue and break out the loan modification papers with big principle write downs soon or else! I think the tables have finally turned and now the consumer may have the ultimate control over these banking institutions that have straddled them with debt for years. The only problem is that the consumer just doesn’t know it yet……….
By Moe Bedard (broken link) on April 14th, 2008
The word is out and the banks and servicers need to get a clue. People are walking from their underwater homes in droves. What was once taboo has become the “smart” thing to do for many Americans.
This rhetoric that 50% of homeowners do not speak with their lenders or servicers is actually true.
But it isn’t because they are too scared to pick up the phone. Oh no! They have made the sound decision to swim to the top of the water in their homes, grab their families and belongings, get in the “rental boat” and then shut the proverbial foreclosure door. All without so much of a peep or squeak.
Lenders used to use foreclosure as a scare tactic. Now, it’s nothing more than a solution for people’s misery that were once strapped by the debt, ball and chain known as their home.
“The fact that many troubled borrowers have properties that are now worth less than the principal amounts … suggests that lenders and servicers should give greater consideration to the use of principal reduction as one of the loan modification options in their tool kit,” Kroszner told the U.S. House of Representatives Financial Services Committee.
Hope Now’s efforts have been getting bashed lately and more hints that many actions taken by lenders thus far, such as placing homeowners in repayment plans (all 800,000 plus of the 1.2 millions helped) are just prolonging the inevitable pain and proving that these lenders and servicers do not have a clue when it comes to loss mitigation in today’s foreclosure environment.
“[Repayment plans] put more loans upside-down,” said Jim Carr, chief operating officer for the National Community Reinvestment Coalition. He adds that these fixes make it more likely that borrowers will walk away from their mortgages (broken link) if they get behind again, since they have no equity to lose.
Carr pointed out that, Hope Now’s claims not withstanding, foreclosure rates continue to soar. “We’re en route to possibly 2 million foreclosures this year alone,” he said. “It’s so important that, rather just putting out stats to look good, that something is actually accomplished.”
Lenders have created an environment where the threat of foreclosure means nothing. In actuality, bailing out on your sinking home actually makes sense to more and more people that don’t want to go down like the Titanic.
Hell, just put on the rental vest and dive in, it’s not so bad and the schools are just as good as Johnny’s!
Let’s face it, many borrowers (people) put little or no money down, so they don’t have much skin in the game. With little skin in the game, it only makes sense to leave while you have whatever skin you have left in tact.
Why keep making payments on a home that is severely underwater and is not going up anytime soon?
The other threats of ruined credit and deficiency judgements are just hollow threats.
Listen here everyone, people can’t eat or sleep because they are so worried about paying their mortgage and losing their home. Now, they are starting to realize that just letting go is the best thing to do to keep their families together and sanity in tact.
Many will choose to stick it out and fight by trying to obtain loan modifications from their lenders. Often these are people who have strong ties and memories in their homes. Skin in the game and a lot to lose. I hear from these people every day in my forum. Their stories are heart wrenching and plights commendable.
However, the immediate pain of just biting the foreclosure bullet and walking away is better for some. Better than the prolonged agony of dealing with bottle-necked lenders and employees who were a week ago at Wall Mart or better yet, in India in a sweat shop.
The Mortgage Debt Relief Act of 2007, is a consumer protection act that gives homeowners all the more reasons to walk on their homes and loans. Especially the ones who were once on the fence.
Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return.
The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).
The debt must have been used to buy, build or substantially improve the taxpayer’s principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision.
A couple forms and a U-Haul is all you need to walk. Wow! FYI banks - You better get a clue and break out the loan modification papers with big principle write downs soon or else! I think the tables have finally turned and now the consumer may have the ultimate control over these banking institutions that have straddled them with debt for years. The only problem is that the consumer just doesn’t know it yet……….
Excellent post.. Heck.. I'm not even looking for a write down on my mortgage note.. I am just looking for a FIXED interest rate and an maturity date extension so that I don't have to foreclose. .. I"M NOT a subprime.. I"m an Alt-A conventional arm that started at a decent rate of 6.95%.. gettign NOWHERE...
Now.. consulting with a bankruptcy attorney to threaten a chapter 13 and force the hadn of the servicer to modify my loan..
BELIEVE IT OR NOT!! I DON't wnat to walk away..I WANT TO STAY AND THEY ARE GIVING ME A HARD TIME!!
We are truly becoming a nation of immature brats who refuse to rake responsibility for their actions.
Unfortunately these immature brats have hurt people who truly bought the way you're supposed to, now due to circumstances beyond their control their house is upside down as well, or has lost considerable equity due to all the foreclosures in their neighborhood.
Unless they come up with something to bail the immature brats out, innocent people are losing as well.
Thankfully I'm in north Jersey and this hasn't really affected us...homes have dropped a bit but nothing like some areas...good grief I was looking at listings in Cape Coral Fl...then looking up on the Lee County Fl website what some of these homes sold for a few years ago...
Location: Georgia, on the Florida line, right above Tallahassee
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Imagine a swimming pool full of water which is constantly getting higher. At the bottom of this pool are coins. You pay money to dive to the bottom to pull a coin. Some coins are worth more. Some coins are worth less. Some coins are worth the same.
You have to pay to take a dive.
Many people dive in. Some are excellent swimmers. Some have good timing. Some can barely swim. Yet, they all want that expensive coin. And so they dive.
As the pile of coins grows lower, there are less expensive coins and more regular coins and lots of low value coins. People begine to panic. They MUST have a regular coin AT LEAST. Peoople begin to fight in the water. The gates open and they let the sharks in.
Mass hysteria erupts. The sharks smelling blood, begin to circle. People rush out. A few expensive coins are left, many regular and hundreds of low worth coins.
The people who were left at the end demand their money back. After all, they didn't get a high value coin.
The proprieter simply points at the sign that says "No refunds for any reason."
And the people mob him, take their money back and run like hell.
HAHAHAHHAHA. That's hilarious.
***********************
So who do you think lost or won in that scenario? The initial investors. Everyone else gained nothing or lost. Even the sharks lost.
I dont understand why all caught up in this are labeled as brats..the ones that truly went in with nothing are walking away .. so I'd say that is bratty... Those that purchase a home they could only afford and sustain at a really low and unrealistic interst rate like 3%.. maybe I can see. All they really wanted was that American dream..
I'm a victime of their bad decisions as much as some of my own poor choices.. WHY? because i'm not subprime..but the only product for me was a conventional Alt-A ARM.. Why? because I work for myself and don't collect a paycheck.. I make more money on my own than if I worked ina cubicle everyday! but when the subprime debacle started,.. they immediately pulled the product I woudl ahve needed for the refi into a fixed (because my score was much much better than it was before .. although not bad before, but not stellar) Also.. their defaults flooded the market wtih 'panic sells" and lower the value of my home.. so bye bye equity I had not only put down.. but put in!
On the one hand.. I can understand the resentment.. on the other.. I realyl can't blame them for thinking that the impossible WAS possible. When you want something so bad.. you can really believe what the salesman is pitching to you.. and what they wanted was a HOME.. probably just like the one they had growing up.
Timing. it also has to do with where you are in your life. If you were at that point where children were coming etc.. and you happen to be at that point at the hegiht of the market.. it' sjust bad timing.
Nobody wants their money back.. nobody wants their house for free.. allt hey want.. is to Pay back for said house at an interest rate they can afford. Some can pay a reasonable 5 or 6%.. so why not let them? Yeah.. some bought $500K houses on $40K a year and can only pay $1100 /month for that type of house.. now THAT is not realistic and well.. they will really loose in the end. It's sad, it's unfortunate..
Let the ones who can pay at a normal interest rate STAY in their homes. I for one am only asking for teh rate to be fixed.. not even asking for principal reduction because I'm upside down.. If the banks would just get real and REALLY work with their borrowers.. NO taxpayers money would be needed and we can all get back to our lives..
BUT. the banks WANT this to be a "crisis" so that they .. THE BANKS.. can get gov't money AND take people's homes..
TristansMommy, you bought a house and then you borrowed against the equity in that house. The equity in your house is your cushion against exactly the kind of problem you are facing right now. I think in another thread that you said you put 10% down. Even if you bought at the height of the market in Levittown at the end of 2005, you'd have only lost 6% in value in your home since then. If you'd left your equity alone, you would still have a 4% increase and you wouldn't be scrambling to pay more than the house is worth.
It's easy and convenient to blame the banks, but it is your decisions that put you into this spot, not theirs. You based your future financial decisions on a bunch of "ifs" and "maybes". You bought a fixer upper knowing that you'd need to borrow against its own equity to pay for the upgrades because you didn't have the resources to pay cash for them. You gambled that housing prices would continue to increase above and beyond the rate that you were borrowing against the equity.
Here's the thing: once banks start forgiving principal and reducing rates to the troubled masses, do you think the untroubled masses aren't going to want it, too? Our homes are declining in value, at the same alarming rates. We're losing equity and facing the same higher costs and STILL managing to make our mortgage payment every month. First, we don't lie on the mortgage application, then we provide full documentation, put 20% or more down, work hard to keep our credit score high and our debt low AND we pay more to get a fixed rate versus a teaser rate ARM-- do you really think we're going to sit back and clap, while concessions are made to people who made poor choices? Clearly we're idiots for thinking that the rules still applied and a contract actually meant something, but there are limits. And somebody in trouble being refied into 5% while we're paying 6.5% is going to be the straw hitting the camel.
Once I know someone whose principal is actually reduced and debt erased-- know it for a fact-- I'm going to demand the exact same thing. And if I don't get the same preferential treatment, I'm suing. Big time. And a ton of others will, too. Because rewarding those in trouble for making unfortunate choices is simply going to make those not in trouble demand the same concessions. If the banks and the government are going to dish up that pie, they'd better get ready to cut a LOT of pieces!
This is the ultimate Pandora's Box, and nothing good is going to come out of it! Except lawyers will get very, very rich.
TristansMommy, you bought a house and then you borrowed against the equity in that house. The equity in your house is your cushion against exactly the kind of problem you are facing right now. I think in another thread that you said you put 10% down. Even if you bought at the height of the market in Levittown at the end of 2005, you'd have only lost 6% in value in your home since then. If you'd left your equity alone, you would still have a 4% increase and you wouldn't be scrambling to pay more than the house is worth.
It's easy and convenient to blame the banks, but it is your decisions that put you into this spot, not theirs. You based your future financial decisions on a bunch of "ifs" and "maybes". You bought a fixer upper knowing that you'd need to borrow against its own equity to pay for the upgrades because you didn't have the resources to pay cash for them. You gambled that housing prices would continue to increase above and beyond the rate that you were borrowing against the equity.
The banks didn't make you sign the papers.
Yes.. I did tap into some of the equity (about 6 months after I purchased) but not alot.. truly not alot and it wasn't an equity line of credit. It was a refinance.. I also got the initial interest rate lowered too, so while I was tapping into it, because my rate was lower than prior the monthly payments weren't much different.The amoutn I took was really not much at all. Just a little to get the rest of the work finished. At the time I got this mortgage my home was appraised by the lender at $450 and I had a $400K mortgage..so I still had slightly over 10% equity in my home.
As for "gambling".. again..I don't feel it was a gamble.. not when there were products there that would later allow me to refinance in two years with appreciation (and I said it before.. i certainly didn't expect them to appreciaet at the fast click they were.. evern a small appreciation wtih time, plus paying down principle would have worked) not to mention proving that i was responsible by paying my mortgaeg on tiem for that two years .. PLUS the improved credit score (and it was climbing). The problem became that the industry removed the mortgage product from the shelf that I would have qualified for at the time of refinance in the summer of 2007. They did that adn pretty much locked a lot of people out because of what was happening in the subprime market.
We did have cash that we could have used, but we had our first child on teh way at that point and I had no idea how that would affect our cash coming in. I no longer had family here to provide free child care. I also knew that that would raise my health insurance premium pretty heavily (self employed pay pretty heavily for coverage!!! all on our own) and I'd need to be able to compensate for that.. so the plan had to change (the plan of using our reserves). As it was, in 2006 we had a very ..well not such a good year with money coming in because I wasn't contributing to the biz, pluse my outside self employed work. My husband was also finishing the house and that took a lot of time away.. but we managed despite that, to stay on top of everything. We would be just fine if we had been able to refinance say around Aug of 2007 which was our plan.. but at that time it seemed that EVERYTHING was working against us. And so it was that we weren't able to refinance and are now where we are at!
The if's weren't really "ifs" in my mind.. Get the score up.. refinance into the products that were there when my score reached a certain level. EVen if the house DIDN't appreciate, with the better score we would have probably been able to.. The whole scenario that occurred wasn't a "what if"in my mind.. hell it wasn't obviously even in the mind of the financial guru's at the banks and on wall street obviously.. and aren't THEY the ones that are supposed to be able to know these things certainly better than the average person that is NOT in that industry (finacial industry, that is!)??
And just as a side note.. the only reason my scores weren't stellar was from silly spending in my early 20's that I had paid off and taken care of by the time I was 25 (and at the time of purchase I was 30/31). I vowed NEVER to get another credit card.. and the fact that I had NO open lines of credit AND old stuff on my record was what got me.. which I had no idea.. I thought by NOT having credit debt I was actually doing the RIGHT thing! So .. no problem.. the mortgage liftd my score (as long as I paid on time and I did) and I opened a few lines of credit.. and that did the trick too!
Last edited by TristansMommy; 04-16-2008 at 04:10 PM..
many people scold other's. Wait until they get a stroke or an MI or a debilitating car accident...whatever. Then they will struggle and be in the same boat as many people. Count your blessings while you can people ! All it takes is one clot to dislodge and enter your brain.
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