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Welcome to Mortgage Fantasy Land!
By JLP | March 5, 2009
Check this out:
Nelia Price stopped making mortgage payments in December, after struggling for months to make payments on her option adjustable-rate mortgage. The monthly payments on the $420,000 mortgage began at less than $2,000 and gradually increased to $3,000. She hopes that by missing her payments, her bank will modify her loan. The value of her four-bedroom home in Modesto, Calif., has declined to around $250,000 since 2005 when she paid $465,000.
Ms. Price, a 50-year old real-estate agent and single mother, was able to enter a one-year loan modification in August 2007 that set her monthly payment at a fixed-rate. But her bank wouldn’t extend the modification when it expired last summer. “They said they couldn’t help me because I was current on my payments,” she says. “I told them, ‘That’s ridiculous. I don’t want to ruin my credit score.’”
While Ms. Price could be eligible for a government-subsidized loan modification, which is targeted to borrowers who received exotic loans with teaser rates, that provision would last for only five years and relies on the voluntary participation of her lender and servicer. Under that program, the government would share the cost of reducing monthly mortgage payments to 31% of a borrowers’ income if the first mortgage holder reduces the loan to 38%. That would require her bank to sharply reduce the mortgage payment, because her mortgage payment has grown to $3,000 while her monthly income has fallen to around $4,000, around half of what it was two years ago. “It’d be nice to get the help,” says Ms. Price, “but I’m not sure what Obama can do about this.”
This woman’s payment could drop to around $1,240 ($4,000 x .31) for five years (if the lender agrees to help)!
Question: What happens after five years?
So what’s this lady’s excuse? It’s not like she could have been fooled by some rogue mortgage broker…she’s a realtor! She made a bad decision and should have to pay the price for it. Yes, that means she should lose her house!
I think it’s time the average American stand up and say, “ENOUGH!”
Topics: Credit Crisis, Housing Market | 30 Comments »
March 5th, 2009 at 10:53 am
Even lowering the interest rate to the 2% floor rate and increasing the term to the max 40 years, her payment would be $1271.87 or more than 31% of her income. That is also just the note payment. Mortgage debt ratios ususal take into account taxes and insurance which could cost her $500 a month more. It would seem she cannot afford her house any more. Why should I help her pay for it. ENOUGH!
March 5th, 2009 at 10:55 am
And while I try not to get started on a rant against this program, how about a $1000 a year principle reduction payment from the government for five years to reward me for NOT needing any sort of mortgage bailout.
March 5th, 2009 at 11:02 am
Monark,
I know! It’s absolutely absurd!
March 5th, 2009 at 11:02 am
Thank God someone else agrees with me on this issue! The fact that is hard for many people to believe these days is that owning a home is no longer a dream that is attainable (or even logical) for many people. Life sucks for everyone, whether it may seem so at any given moment.
Ms. Price didn’t comment about how her savings were able to help her current situation… Does she have any??
March 5th, 2009 at 11:09 am
I guess the part of the discussion that troubles me is the woman’s comment on not wanting to ruin her credit score. I would expect any modification on an existing mortgage loan to have a detrimental effect on one’s credit score.
If the borrower is able to get the bank to eat some of the loan, then the borrower must surely participate in the pain, and that pain should include a damaged credit score.
That damaged credit score will serve as a reminder to the borrower and a red flad for future lenders.
March 5th, 2009 at 12:16 pm
How could this woman qualify for help? I was under the impression only Fannie and Freddie loans were eligible, and I don’t believe this type of loan would qualify. Do they accept “exotic” loans? And didn’t she take this loan out before the Jumbo loan provisions for certain states were raised from $417,000?
Speaking of Jumbo loan requirements easing, should we revisit that if the homes that led to the easing have decreased below the old threshhold amounts?
No offense to responsible California, Nevada, Arizona, and Florida residents. But the mortgage mess is largely the fault of those states and the idiots who underwrote, bundled, rated, and purchased the loans.
March 5th, 2009 at 12:18 pm
So let me get this straight
1) She originally made 96000 a year.
2) She put 45K down on a 465K house, which she could only afford with creative accounting.
3) That made her mortgage 420K, making it just shy of 4.4 times her income
4) Now that her real estate job is drying up and she is only making 48K a year she wants her loan modified to keep her McMansion?
Whatever happened to mortgage at 2-3 times income… 3 being the MAX? This is the type of person who absolutely should lose their house. Maybe if the original house was 250K with a 200K mortgage at 2 times her income and then her income was cut I could see helping, but this is way too out there for help.
March 5th, 2009 at 12:20 pm
Well we can’t fault the lady for wanting to “play by the rules”. The hate should be more accurately focused on the the government for creating these loopholes by trying to over-regulate a system that would be just fine w/out em.
Here’s a quick STFU in advance for the “free markets got us into this mess” remarks
March 5th, 2009 at 1:18 pm
I’m one saying ENOUGH! The government is rewarding irresponsible behavior…IMHO that’s the bottom line. I live in Florida, bought a tiny one bedroom condo in 1997, 20% down (no PMI for me) and paid off my 15 year mortgage in 8 1/2 years. I never cashed out my equity. I did get a HELOC that I put about $2K on and paid it off in 2003. I treasure my little condo because it’s paid for…I’ll never be homeless like some people will. But I’m sorry, I’m tired of my current and future tax dollars going towards these losers who bought way too much house, the crooks in the financial system, and our spineless leaders who keep doling out the money. To add insult to injury, the money I have in savings is getting a paltry amount of interest. I know that I am fortunate – but it’s because I made the right choices all along the way. And this is my reward? Trillions of dollars in bailouts? Pathetic – sorry for the rant.
March 5th, 2009 at 2:00 pm
I feel bad for all the children who have recently been born to our society… Hopefully our children will learn from these massive mistakes and they will take back the life, liberty and pursuit of happiness that the government is taking from us!
Why would Mrs. Price decide in 2005, at the age of 50, to buy a $465,000 house, when she only made $96,000? Did she not realize her income was comissioned based?
Whenever someone gets a bailout, the government should hold the title at fort knox, and these losers should be put on a rent to own program… If they don’t make increased payments on a quarterly basis over 2-3 years, they get the boot and someone gets to step in take a shot at increased rent.
March 5th, 2009 at 2:43 pm
#9: Amy, God bless you.
I just love how people living in California think by making 100K they are rich… NOT SO!!
What is so wrong with renting? Take the hit on your credit score, be happy you got to live in a house that you SHOULDN’T have for the past couple years, and move on. The responsible people and our kids SHOULD NOT be burdened by these fools.
Oh.. and BTW.. These people are NOT homeowners.. People like Amy and the like who hold the deed to their house are homeowners. People with a mortgage are home BUYERS.
OH, and the DOW is down another 200 and change today.. Getting it from all sides.. UGH!!
March 5th, 2009 at 2:45 pm
Update: I’m sorry DOW is down THREE HUNDRED and change now.. Still 15 min of trading left! YAY!
March 5th, 2009 at 4:07 pm
Let me see if I understand this – Like most folks, we have no debt except 10 years remaining on a 15 year mortgage with a remaining balance of $225 vs. $400 market – even in this market – we’re going into retirement with about 65% of what we had and now we get to pay higher taxes to help bail out the Mrs. Prices of the world who made very bad decisions.
In addition, the states have huge unfunded retirement liabilities and because state employees retirement benefits can’t be reduced – we will again be asked to pay higher taxes and take cuts in safety related services.
What about a taxpayer revolt??? I’m not kidding
March 5th, 2009 at 4:18 pm
JLP:
As a mortgage pro, I totally agree with you. I think what you will find in the coming months/years is while a very small handfull of people were led astray by a rogue mortgage professional, by and large most people knew EXACTLY what they were signing and doing. They just didn’t care about the consequenses “down the road”
This womans issue is not her loan, but her income and her homes value decline.
Most people are being forclosed on not because their payments are going up, but because their homes value and their income are going down. Or they never had the income in the first place.
The blame falls almost entirely on the one who borrowed too much money. They knew the terms, and they knew the risks, and they gambled and lost.
Lots of people borrowed money for a home in the past 5 years and are not behind. They haven’t missed their payments, and they are not at risk of foreclosure. They are responsible, and they are being ripped off by the same group who now cries victim – The overzealous borrower.
March 5th, 2009 at 4:51 pm
Even though the value of her house has declined and she pays more monthly, if she can’t make the payments then I think she should lose her house. She shouldn’t have bought the house if she couldn’t afford it! I mean even with the teaser rates she had to have known that the payment was going to go up. I say if you can’t afford a house on a 30 year fixed mortgage then you shouldn’t buy it.
And what’s with the if I miss my payments the bank will modify the loan? Why not call the bank and try to negoitate with them before you miss any payments. That part makes no sense to me.
March 5th, 2009 at 5:00 pm
That is absolutely crazy but also just another indication that this system is broken and will lead to more disaster if it’s not fixed quickly. Our own sound judgment is often now our only insurance against misfortune in the future. Only buy what you can reasonably afford and try to have a back up plan. Oy!
Jerry
http://www.leads4insurance.com
March 5th, 2009 at 7:59 pm
Every time I read stories like these, it makes me feel like a real jerkoff for buying a very modest little house 3 years ago. The bank was offering us almost triple than what I knew we should probably pay comfortably, but we went the prudent route and just bought a little house we knew we could afford. It’s only worth about 1 times our annual income.
But look at me, I’m a fool because I didn’t take the bank’s offer to buy us a McMansion and get government handouts a few years down the road so I could keep something I shouldn’t even have in the first place.
March 6th, 2009 at 1:01 am
Here in the UK i’m an FSA approved independent mortgage broker. We have a duty to find out affordability for the homeowner. So initially the buck stops with us to find evidence of affordability , but then if the homeowner is not truthful they get themselves into situations like this if they borrow more than they can afford. I would not be happy as a tax payer to bail out individuals like this.
March 6th, 2009 at 8:52 am
Oh please all you mortgage brokers, DO NOT try to skirt the blame on this. There were MANY pigs at this proverbial trough and you were one of them.
Credit Crises Law of Thermodynamics: “If the heat is on someone else, the heat is not on me.”
Give me a break.
March 6th, 2009 at 9:04 am
BOO FREAKING HOO for her half million dollar house. If you buy a half-million dollar house, you should actually have some resources. Foreclose her.
March 6th, 2009 at 12:32 pm
@Chris,
“Oh please all you mortgage brokers, DO NOT try to skirt the blame on this. There were MANY pigs at this proverbial trough and you were one of them.”
if a mortgage broker committed fraud, that is one thing.
However,
car salesmen:cars::mortgage brokers:houses
If a mortgage broker simply put someone in a mortgage vehicle that the buyer was “approved” for (based on the current lending standards of the bank), then the brokers are CERTAINLY NOT to be blamed.
Furthermore, you can’t blame the banks(lenders) either. As private entities, they have every right to run their business however they like…including running it into the ground by not properly assessing the risk of said Buyers defaulting.
And you can’t blame the CDO buyers for buying up these toxic assets from the banks/lenders…since, again, as private entities, they have every right to run their business however they like…including running it into the ground by not properly assessing the quality of risk assigned by the ratings agencies for said CDOs.
And you can’t blame the Ratings Agencies, since, again, as private entities, they have every right to run their business however they like…including running it into the ground by not properly assessing risk of CDOs.
And you can’t even blame the home-buyer. After all, they were approved for the mortgage and are allowed to stop paying anytime they want (obv going into default, lose house, yada yada yada).
If you want to blame anything/anyone, blame the GOVERNMENT for not letting the companies experience the results of their poor decision making (banks/ratings agencies/brokers/etc) and instead making decisions to pick winners and losers as an attempt hold up the value of assets owned by their rich buddies who keep them in office via lobbies and contributions and blackmail and other tinfoil-hat-wearing-scenarios.
QuickFact: AIG is being held up because GS and other “I-banks with close govt friends” made bad decisions by relying on AIG to make good on its CDS contracts. So instead of letting AIG fail, GS fail, and their friends fail, they convince the sheeple that this is in THEIR best interest. The absurdity of it all leaves me pounding my head against my desk almost on a daily basis. I’m just glad I’m young and have a small net worth. I don’t think I could stomach these next few years if I had more than 5 figure net worth.
BLAME THE GOVERNMENT. They are the problem NOT the solution! Of course once you start digging deeper, you will find out the Govt is merely run by the FED due to the dependency on being able to run massive deficits in order to expand.
Next Chapter: BLAME THE FED!!!
March 6th, 2009 at 12:36 pm
edit: I purposely left out the GSEs for sake of having a lot of work to finish before I go out and get wasted to celebrate my wife’s ginormous promotion. Hint: she works for the government…so I guess you could say we are HEDGED for the next 4 years…
@Bill
“What about a taxpayer revolt??? I’m not kidding”
I’ll stand shoulder to shoulder with you and anyone else who wants to move forward with this. We just need to organize ourselves. I lack the drive, so I’ll follow.
March 6th, 2009 at 12:43 pm
If the payment can’t reasonably be cut to 31%, people don’t qualify. They lose the home, as they should since they never should have been in the home in the first place.
So, what is best for the country? That we help out some idiots who took out idiotic loans that can stay in their homes under some new terms (what about 5%?), or we let everyone get foreclosed on and the housing market continue to crumble, banks lose money, and some smart people swoop in and buy the foreclosures at a fire sale?
I’m not smart enough to know what is best for the country (it sounds bleak no matter how you look at it), but really, that is the question we should be thinking about.
Blame the government? Sure, but I totally disagree with “you can’t blame banks/rating agenecies/homebuyers” there is plenty of blame for everyone.
March 6th, 2009 at 1:11 pm
@SP
>> “…or we let everyone get foreclosed on and the housing market continue to crumble, banks lose money, and some smart people swoop in and buy the foreclosures at a fire sale?”
yes…that is the most efficient way to solve the crisis. trading mistakes is how the game works.
>> “Blame the government? Sure, but I totally disagree with “you can’t blame banks/rating agenecies/homebuyers” there is plenty of blame for everyone.”
Please give me a logical (and more importantly “unemotional”) explanation why you CAN blame the banks, ratings agencies, or homebuyers. Pick one (banks/RAs/homebuyers) so that the task doesn’t seem so daunting.
March 6th, 2009 at 1:12 pm
sorry, should have included this in the last post…
“>> “…or we let everyone get foreclosed on and the housing market continue to crumble, banks lose money, and some smart people swoop in and buy the foreclosures at a fire sale?””
it is the resulting “buying at basement prices” that drives the value back up.
March 6th, 2009 at 2:41 pm
This lady typifies the rampant greed and idiocy that took hold of too many people and too many financial entities of all types. I am SICK of throwing money at the problem. Let the banks fail, let AIG fall, let the shortsighted, greedy automakers fail, let those who never could afford their homes and never should have been financed be foreclosed on, and let the dust settle.
We are responsible homeowners who purchased far less than we were approved for. Our debt to income ratio is 31% – for EVERYTHING on the books. We save over 18% for retirement. So WHERE is our reward for being responsible and sensible!? Why on earth should we have to fork over our hard earned money to prop up bad banks and foolish homebuyers!? I’m absolutely infuriated.
March 6th, 2009 at 4:08 pm
>>Please give me a logical (and more importantly “unemotional”) <<
No thanks, i really don’t like arguing this stuff, nor I do not think you presented complete logical arguments to support your claims. Your comment seemed very emotional. I could research stuff, cite articles and news I’ve read, but what is the point? Your mind is made up. There are a lot of opinions out there, and none of the “experts” can agree.
I was just trying to add a different perspective to this discussion, though we can all agree this lady is an idiot who deserves no sympathy.
March 7th, 2009 at 11:01 pm
Enough of what? Your enough seems to have more vigor when it comes to dumb homeowners which we are spending 75 billion on rather than the even dumber banks that we are spending 2 trillion on? Your enough sounds similar to the cry about “welfare cheats driving Cadillacs” in the early 80s while the bankers took their money out before all that risk came crashing down. Is it moral to give a loan to someone you know you can never be paid back? The banks gave the money to these dumb homeowners yet your outrage is directed at the dumb homeowner.
If loaned your brother knowing your brothers history of irresponsibility including poor credit, little or no income etc. and yet you loan him the money–shame on you–and now you are asking the rest of us to bail you out, and to make matters worse you took huge fees out before the known risk came crashing down.
March 10th, 2009 at 9:50 pm
@Deb “Let the banks fail, let AIG fall, let the shortsighted, greedy automakers fail, let those who never could afford their homes and never should have been financed be foreclosed on, and let the dust settle. ”
Only when the dust settles don’t be surprised when you find yourself out of a job. Also, don’t count on being able to find a new one quickly – very few companies are hiring right now.
Here is how it works – AIG fails, banks who bought CDSs (and all other insurance policies, including normal insurance policies) don’t get their money and fail too. This means a lot of banks all over the world. Less banks = less available money = even tighter credit. Plus tens of thousands, even hundred of thousands of these banks’ employees out of work.
Tighter credit – more businesses fail, including those who have nothing to do with finances, more businesses lay off people.
Newsflash – unemployed people don’t pay taxes, hence less revenue for states and for government. Less revenue for government, so the deficit goes up anyway. Plus, municipalities can’t afford to pay for their bonds, so they may default too. Stock holders and bond holders lose money – any stocks and bonds in your 401K left? Unemployed people don’t spend money, so less stuff is sold and more companies can’t earn money and close. Etc. Prices start coming down, even fewer people are buying: why buy now if I can buy it for less 3 months later?
Got the picture? BTW – everyone is so sure the economy can recover by itself. Really? Did it recover by itself in the Great Depression? Nope. The war did it. What exactly is the war if not a large spending bill?
Deflationary cycle is very difficult to get out of, much more difficult than high inflation.
For the record. I paid off my mortgage a few years ago and have no debt. I also lost 20% of my money last year and probably additional 10% this year as well – a six digit amount in total. I don’t know if this plan will work but I’d like to forgo my righteous indignation if there is one chance the combined plans will help the economy. The expense of doing nothing may be greater.
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