Mortgage Survivors

[DeSwiss]

Source: The Washington Post

Mortgage Survivors

The Washington Post
By Nancy Trejos
Washington Post Staff Writer
Sunday, May 4, 2008; Page F01

Zena Collins knew she had a serious problem when she could no longer afford electricity. The mortgage payment on her Gaithersburg house had jumped about $500, to $2,000 a month, not counting taxes and insurance, after her adjustable interest rate increased. When she bought the house in 2000, she was a pension administrator. By the time her company decided to cut her job, she was bringing home $5,200 a month. In April 2006, she managed to secure a similar job -- but not a similar salary. So there she was, earning less but paying more for her house. And that's when the lights went out. "I simply could not do it," she said. "I was sitting there with battery-operated lights and showering with cold water."

*snip*

"We are all in some cases hitting a brick wall," said Diane Cipollone, attorney and director of the Sustainable Homeownership Project at Baltimore-based Civil Justice. "The response time is months -- months -- to get a workout, and the workout is often unaffordable."

There are conflicting data on how many borrowers are getting permanent loan modifications, such as a reduction in debt, rather than temporary solutions, such as repayment plans that will bring down the level of their delinquency. Decreases in debt are especially rare, according to the Mortgage Bankers Association. Some borrowers settle for short sales, in which they sell the home at a loss and are forgiven the debt.

Hope Now, a nationwide coalition of lenders and housing counselors formed last year, recently reported that in January and February, servicers provided about 309,700 workouts -- basically, a solution that keeps the owner in the home. But most were done through repayment plans, not loan modifications. The State Foreclosure Prevention Working Group, composed of state attorneys general and state banking regulators, last month reported that seven out of 10 seriously delinquent borrowers aren't even in a workout process.

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2008/05/03/AR2008050300320.html?nav=rss_email/components

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- Wall Street, trumps Main Street. Again.
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DeSwiss


http://atheisttoolbox.com/">The Atheist Toolbox

[dkf]

1. Actually, it looks like main street triumphed.

"Sixty days later, they agreed to a 30-year, fixed-rate mortgage of 4 percent. Her monthly payment would cover both the principal and interest, and she would pay no fees for refinancing."

I wish I could get a 30 year fixed at 4 percent. I don't know anyone who has a mortgage like that.

[Earth_First]

2. No kidding. n/t

[leftofcool]

3. Me either! Ours is 5 and 3 quarters and that is the best I have ever seen

[DeSwiss]

10. Yeah, well....

...I'm sure that the 7 out of 10 who aren't even involved in a loan workout process are very happy for her.

Funny thing is though, I don't recall there being any delays, snafus or where 70% of the Wall Street investment banks who caused this problem having any difficulties with their "loan workout process..."

[high density]

12. So why can't the responsible people

get these deals as well?

Seems odd to reward bad behavior.

"Yes, she admits, she made some bad financial choices, going from a 30-year, fixed-rate mortgage at an 8 percent interest rate in 2000 to an adjustable-rate mortgage at 8.5 percent two years later so she could use the equity to replace appliances and fix a cracked patio.

When that rate was set to increase, she refinanced again and took out more money to work on her 32-year-old house. In February 2007, she refinanced to a 10.8 percent interest-only mortgage that would soar to as high as 13.8 percent after two years."

This woman is very freaking lucky.

[notesdev]

4. So the way to get an amazing deal...

... is make grossly irresponsible financial decisions?

I gotta get me in on that action.

[AP]

7. You're talking about the bank's management team of MBA, JDs and PhDs, right?

Why'd they give this woman such an irresponsible loan in the first place?

[prolesunited]

8. Who was grossly irresponsible?

She *DID* have a job that allowed her to afford her payments.

[shrike]

9. At the time she bought the house, she was making $5,200 a month

So she paid $1,500 a month for her mortgage a while, which was less than 30 percent of her gross monthly income. If she hadn't lost her high-paying job, her payments, while higher, would have been doable as long as she made sacrifices.

So unless she had a crystal ball that told her loud and clear she'd get canned, I fail to see how her purchase fell into the "grossly irresponsible financial decision" category.

[notesdev]

11. A little research reveals

... that Ms. Collins is quite good at getting her sob story in the paper; if her financial decisions were half as good, she wouldn't be in this mess.

She bought the place in 2000.

in this story:

http://homefinance.nytimes.com/article/news/2007.10.02.country/5/

she relates how she was still holding an ARM in 2007. At 11 percent - ouch.

What she should have done is refinanced into a fixed rate mortgage sometime in the past 7 years - IF she didn't buy more house than she could really afford. She could have taken advantage of the high valuation and low interest rates of this period, but she didn't.

In the NY Times story, we see she now makes half of what she did in the previous job. It's not really reasonable to expect that you can maintain the same lifestyle on half the pay - and what that having been over a year ago already, she's had plenty of time to make arrangements appropriate to her means. What has she been doing over the past year? Planning to default?

And where is the house equity? She's been paying a mortgage for 7 years, got the full valuation boost of the housing bubble (since she bought in 2000)... she should have a good deal of equity in the house to bargain with. What happened to it? Did she spend it?

I think if we dig down to find the answers to these questions we find a lot of people in bad mortgage situations right now were full participants in the mess.

With regards to this particular case, 2000 mortgages aren't typical of the housing bust to begin with - the years that are trouble are 2003+, in general. So even if her story were completely true and not in omission of crucial facts, it's not at all illustrative of the housing crisis in general.

[AP]

13. Why do you think the bank approved this loan?

[notesdev]

16. Because she basically agreed to a raw deal for herself to begin with

An APR loan, probably near 10% to begin with, the banks were planning on turning her into a debt slave from Day 1 and she, foolishly, agreed to it.

[shrike]

15. Once again, is she supposed to have a crystal ball, letting her know

she'd someday lose her job and find another one at half the pay?

"In the NY Times story, we see she now makes half of what she did in the previous job. It's not really reasonable to expect that you can maintain the same lifestyle on half the pay - and what that having been over a year ago already, she's had plenty of time to make arrangements appropriate to her means."

You really don't have a clue, do you?

[notesdev]

17. You don't need a crystal ball

All you need is the basic information that you should have before you ever sign a mortgage to begin with. Unless she was already over her head from the first moment she signed the loan, there's no good reason not to have refinanced to fixed during the period of historically low rates and high valuations.

[UpInArms]

5. too many people pulled all the equity out of the houses like it was a piggy bank

and too many banks turned the loans into "exotic" vehicles (CDOs etc)

more from your link:

Consumer advocates and mortgage experts said part of the problem was that too many people got second mortgages, often with a separate lender, so they would not have to make large down payments. "Everyone is going to have to work together to get a modification, and frankly, that's hard," said Julia Gordon, policy counsel for the Center for Responsible Lending, a nonprofit research organization.

The other hang-up is that many mortgages were sold to pools of investors, who are less inclined to take a loss.

[AP]

14. turning mortgages into investment vehicles sold by wall st spread risk -- and now people are saying

that maybe that was a mistake. It's the risk that keeps the MBAs from making stupid decisions about how much money to lend to people.

So, now you have the spread out risk, that helped inflate the bubble. But what might be worse is that the government is bailing out the investment banks. That's just going to make them inflate the bubble even more before it bursts.

But, hey, people with money will know how to make even more money off the chaos that will result.

[notesdev]

18. Not a mistake... it was deliberate

when they turn the sig lines on again you can see the Greenspan quote I have been using for that purpose. This was a designed disaster.

[JeanGrey]

6. Wow, a four percent loan with no closing? Geez, If I knew it was

that easy I'd taken an adjustable years ago! Reminds me of someone I know who went bankrupt, kept the house, bought another one through owner financing a year later (much bigger, 250K) and then proceded to be a slum lord with the first house!! If their renters were even two days late they take a "get out" notice on their front door. Finally they moved in the middle of the night and now they don't have any renters AT ALL. SERVES THEM RIGHT.