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Discriminately forgiving part of the principal and reducing rates to 2.5% while others are being forced to repay their entire mortgage at 6.5-7.5% and fully absorb the equity loss is inexcusable. People are in jail for screwing others a lot less.
This isn't going to happen much and it hasn't happened much. Nobody wants to take the hair cut which is at minimum 10%. Investors have shown they have no interest in taking the loses. So, either the bank will have to take the loses (not going to happen) or the government will have to buy the mortgage out of whatever toxic pool its in and then modify it.
Considering they are already moving away from the original tenets of the so called TARP (i.e., where they buy troubled mortgage securities) its unlikely this is going to occur in large numbers. There just isn't money for it.
Interestingly, Alt-A borrowers aren't even responding to the lenders. In order to do a modification the lenders need financial information, but many people lied about their financial information and as a result don't respond.
Also, there is another conflict between the investors and the banks. If the loans were badly originated the investors can force the banks to take the loan back. Its really a good time to be a lawyer.
I agree that the impact will be lessened by borrowers' inability to qualify with actual disclosure-- I just think it's outrageous that it would even be considered for those who created their own misery. Lenders should require homeowners to sign form 4506 as a condition of loan mod, giving lenders permission to pull old tax returns from the year of, and two years preceding, the application for the original mortgage. If the borrowers were honest about their income, but suffered a reversal of fortune, then a rate reduction or some sort of forbearance could help them through a rough patch. But to reward dishonest borrowers with a free pass out of a liar loan for a property they could never have afforded otherwise-- that's the wrong solution.
Of course, this may have minimal impact on Sheri's market, where liar loans aren't as prevalent as they are in SoCal.
Prices will never drop if the banks keep enabling people who bought beyond their ability to pay.
You and I think it's beyond their ability to pay because we wouldn't be caught dead paying that kind of money ... but that's not necessarily what other people think.
Just as an example, I work with a guy who makes $75K a year. His wife is a waitress and he fixes cars on weekends for extra money. They have two kids. So you gotta figure their gross income tops is maybe $100K or so.
Nevertheless ... they have a $450K mortgage in Marina and somehow they're paying it. You and I wouldn't be caught dead paying that kind of money but ... they do.
I meet people like this all the time who pay these outrageous amounts for housing and don't think twice about it. Believe me ... I don't understand it but they are out there.
Obviously there are the 100,000 who say to hell with it and leave the state every year but, there are also a lot of people who are willing to pay outrageous amounts to live on or near the coast. These people do not think the way you and I do.
Of course it is the government behind this. One of the biggest influenece in the bailout being pushed to two votes in congress and letting the second start in the senate was the cities. They have no interest in letting values drop even more as it will destroy thier tax base.If they did then they would just have to readjust so that say a 250,000 home had the tax rate increased to that of a 700,000 home previuosly, That would mean loosing votes and office.In the edn they will tax homes accordingly to raise the moeny because their is no drop in governamntal cost. Or they will have to drop services by huge amount also.People need to watch what they buy and what the rates may endup being in the near future or you may endup paying a 700.000 amount on a 250,000 home.
Prices will never drop if the banks keep enabling people who bought beyond their ability to pay.
Just to follow up on this point: I do often wonder where these lending standards come from.
We had to get a new pre-qualification letter from our lender to submit this new bid. So, our lender said they would send us a letter stating the max of what we qualify for just in case we needed the leeway for any other bids we might be submitting on other houses.
Well ... they qualified us for an extra $150K for a total of $400K which we would never dream of spending but, you can see how other people would just go ahead and borrow the max anyway.
We do have excellent credit and good income but ... I would never feel comfortable borrowing that much. But, obviously other people do.
You and I think it's beyond their ability to pay because we wouldn't be caught dead paying that kind of money ... but that's not necessarily what other people think.
Just as an example, I work with a guy who makes $75K a year. His wife is a waitress and he fixes cars on weekends for extra money. They have two kids. So you gotta figure their gross income tops is maybe $100K or so.
Nevertheless ... they have a $450K mortgage in Marina and somehow they're paying it.
NORMAL pre-qual has you qualifed for a loan of 28% of your gross annual income. Sounds like the ones you describe fit this perfectly. Also, you don't know if, or how much, they put down on the home.
I've had some clients who have purchased a home where the value was very high - but, they put 50% down -
And, so what if they don't "think like you"? No big deal. And, thank goodness not everyone thinks alike anyway
You can back into ANY ratio by stating an income that is whatever it needs to be to qualify. You ask these same people for tax returns to re-qualify and --oops.
Most homes sold in L.A. (and to a lesser degree, other bubble markets) between 2003 and 2007 were purchased with a no-doc, low-doc or no asset verification loan. Buyers could meet any ratio, as long as you didn't ask for proof. And if you did, well, it was easy to change a few numbers in tax software. But you ask them to let lenders obtain two years of tax returns from the IRS, and a lot are going to balk. They don't call them liar loans for nothing.
Requiring a full doc re-qual will weed out fraudsters and bring prices back in line with incomes. Then the ratios will apply. With most Alt-As, they have been irrelevant.
Last edited by goodbyehollywood; 11-04-2008 at 09:19 AM..
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