Sunday, February 14, 2010
Over the past three months there has been chit-chat in the industry that banks are now extending opportunities to reinstate mortgages on loans, after a foreclosure, to the former homeowners!
Let me cite the example: A homeowner ‘loses’ their home to foreclosure. Legally, it’s no longer their home. The home is legally in the hands of the bank. In the past, after the homeowner loses the home in a foreclosure sale, they move out. They stopped making payments and the home becomes bank owned.
Now, homeowners are being offered the opportunity to stay in their homes, reinstate their mortgage reflecting the value as established at the foreclosure sale with new mortgage terms and new market interest rates. Doesn’t that seem crazy?
Just think about this; you live at 123 Elm Ave. in Webster Groves. Your neighbor at 125 Elm Ave. is no longer making his house payments. You’ve always paid your mortgage on time, have a decent amount of equity in the property and have another 7-10 years left on your loan.
Your neighbor at 125 Elm Ave., however, didn’t carry that same philosophy; maybe he lost his job and couldn’t continue to pay or had health issues that caused financial hardship. Maybe he went through a bad divorce. Whatever the reason, he’s gotten into a position where he’s behind on his payments and is facing foreclosure.
In essence, the bank tells him it will foreclose on the house but he can actually stay in the home while they reinstate the loan at the foreclosed sale price. The bank will reinstate a new mortgage (based on the foreclosure price), eliminate the negative equity, offer a current market rate and allow him to start again.
How does that impact the neighbor at 123 Elm Ave.? His value now just depreciated even more because the value that’s been reinstated with his next door neighbor is at a foreclosed price. Additionally, all of his neighbors negative equity is wiped out, including back taxes, subdivision fees, missed payments, etc., with a hit to his credit (I’m assuming), but still starting again with a clean slate.
What’s the incentive for the homeowner at 123 Elm Ave.? So much for doing the right thing, paying your bills on time and being responsible. He probably just lost more of his equity because he’s next door to a guy that foreclosed yet THAT guy starts clean with a loan at the current market rate. The 123 Elm Ave. homeowner is paying on a loan based on the appreciated value from years before that has partially been eaten up because of distressed properties driving down overall values. What a mess!
It seems this new ’secret’ program is being tested in many major markets across the country. The former homeowner is now able to reinstate their mortgage at the new value as established by the foreclosure sale. In other words, the negative equity is gone. The second mortgage is gone. Back property taxes are paid off. The back homeowner association fees gone. The new mortgage amount is the for what the lender paid at the foreclosure sale!
I want you to think about this for a moment. This means that even after a homeowner missed payments and loses the home to foreclosure they can immediately secure another loan for the homes current market value. Wow!
Consider, 25 percent of all homeowners with mortgages are upside down by at least 10 percent. And 10 percent of all homeowners have mortgages upside down by at least 25 percent. This trend of underwater homeowners will increase before it levels off. There are 50 million mortgages in the U.S. As of today, 6 million aren’t "performing." In other words, homeowners aren’t paying their house payments.
What happens when all of these millions of upside down homeowners discover that they can have their negative equity wiped out, secure a new mortgage and keep their home if they let it go into foreclosure?
Let me know what you think.
Joan Tabash-Curbow is a native St. Louisan with more than 20 years business experience. Her business acumen and strong communication skills allowed her to more easily transition into the residential real estate and distressed sales market in 2004. Curbow is co-author of "Should I Short Sale My Home?" Her real estate contact is CurbowGetsItDone.com. E-mail her at joancurbow@kw.com
Comments
Rune04 (anonymous) says...
I think this is another instance how people who play by the rules get screwed. As far as the individuals taking a hit on their credit, no big deal. Right now you can buy a lot with bad credit.The way it is going, these transactions are probably going to be forgiven by the credit agencies and wiped out. The lenders are going to be able to recupe some of their loses by not having to put the property back on the market. Another negative for your industry, these will be "sales" that won't require real estate agents. I wish I would have bought a house a few years ago I couldn't afford, so I too could have cashed in on this deal. The ones that are making out now are the people living off of entitlements, makes me wonder why I work so much.
February 14, 2010 at 7:03 a.m. ( permalink | suggest removal )
STL_Cornhusker (anonymous) says...
Amen. This makes absolutely no sense whatsoever. In life, actions have consequences, whether positive or negative. If you bought a house you couldn't afford, while sad and unfortunate, you need to lose your house. Bailing people out in this way is just teaching people that they do not have to be financially responsible because there are no repercussions if you're not. Not to mention: who is going to end up paying for their mistakes? Those of us who pay our mortgages, taxes, and everything else on time. Ridiculous.
February 14, 2010 at 8:04 a.m. ( permalink | suggest removal )
zuko (anonymous) says...
What I think? Firstly I think that there's a moral tone to your post that perpetuates the (specious) myth of the unscrupulous home buyer out to screw the lender. Just remember there's never been a single loan made that the lender opposed . The banks made this mess - not the borrowers.
In your concern is for the "neighbor's" property values, let me assure you that having the homeowner remain in his house with a fresh start is far more attractive for everyone than another empty (ransacked) home being tossed back into an already glutted marketplace.
As far as the inequity of the "good neighbor" playing by the rules, ask that supposedly aggrieved person - who still has a job and sufficient income -if they'd like to switch places with their unemployed, financially and emotionally crippled neighbor.
If you think foreclosure, in any of it's forms or outcomes, is a profitable move, ask a few of the millions of folks who've had a lifetime of credit wiped out. Your insinuation that foreclosure is a great financial move is just silly - at best.
Your post also implies that these types of "buy backs" will be common in the future. As a real estate professional you must be aware that 99% of these "deals" are nearly urban fairy tales in reality, and the ones that do occur, do so after the most torturous sorts of negotiation and luck.
Your sort of market analysis and comment is going the way of the dinosaur. The catastrophe of crumbling lives and ruined neighborhoods across the country is a far, far greater concern to the economy of our country than these sort of myopic rantings. Put your energy's into something more than picking over the rotting corpses.
February 14, 2010 at 8:29 a.m. ( permalink | suggest removal )
jcurbow (anonymous) says...
I've helped many of the homeowners you're describing that have been in dire situations get out from under their mortgage. No one wants to see anyone go through what I've seen in some of these situations. I would not wish this on anyone and I'm glad I've been able to help. This isn't going away anytime soon and there's no guarantee these "buy backs" would be common practice. I'm simply educating readers on the various programs being tested and implemented on a national level. No one wins when anyone has to go through a distressed sale. The seller, the bank or the neighborhood; everyone loses.
I also agree with the fact the lender made the decisions to lend the money. They're as liable as the the borrower that took it.
February 14, 2010 at 8:57 a.m. ( permalink | suggest removal )
Rune04 (anonymous) says...
zuko, I don't think anyone thinks the borrower was out to screw the lender in these cases. The lenders have more culpability in these transactions, in my opinion, than the buyers. Why wouldn't someone buy more house than they can afford if the lender lets them? But that does not mitigate the fact that the people who doing things "right" are the ones who end the losers, lower values, tighter credit market, etc. Losing your house for any reason has to be stresful, but let's be honest about this, there a lot of people out there trying to live above their means and the economy got them.
February 14, 2010 at 9:17 a.m. ( permalink | suggest removal )
zuko (anonymous) says...
PS.
To the two self-righteous comments above....
1. Nobody has ever bought a house they couldn't afford. They filled out a stack of contracts six inches thick - PREPARED AND APPROVED BY THE BANK - which expressly stated they COULD afford the loan. Maybe that's not the way it turned out after the hubris, greed and folly of the financial institutions devastated the real estate market, but nobody was holding a gun to the lenders head.
2. Why do you think it's so important to teach your unemployed and already ruined neighbors a lesson? You also neglected to mention whether those lessons applied to the banks who were given IMMEDIATE relief and complete exoneration with a trillion $ in bail out money. What lesson did they learn for their poor judgment?
3. And what is this moral contempt for the millions and millions of children losing their homes? Oh, I guess you forgot that these people - whom are so unworthy of your compassion - are faced with explaining to the most innocent in this debacle why the sheriff is on the front lawn and why they are leaving their schools and friends. But I guess they deserve to be taught a lesson too.
4. And your embarrassing self-involved whining about how you "play by the rules" and "work so much". Exactly how does the misfortune of your neighbor injure your ability to continue pursue your chosen lifestyle? Just like those pathetic homophobes against gay marriage on grounds it will "destroy conventional marriages". What a crock! Your neighbors financial ruin somehow degrades your own work ethic?
5. And don't forget, in the end, the poor banks you're so concerned about getting a fair shake already have had billions in these toxic loans restructured or forgiven by the bailouts. Bailout money that has already been paid back due to the sweetheart deals they were made with the Federal Reserve to provide them money at 0% to continue the same high risk - high return games that got us into this mess. (See today's frontpage NYTIMES article on Greece's latest meltdown)
Far more of your TAX Money was spent in ONE MONTH bombing Iraq than will ever be spent helping to keep Americas families in their homes. (not meant to be political here, this is not the place, so you can pick the senseless, wasteful Govt. program of your choice.)
6. Stop playing the blame game. These people are your neighbors and friends. They are millions of children whose formative years are being horribly disfigured by financial burdens not of their own making. Because you were not one of the NINE MILLION Americans that have lost their jobs in the past three years, you have the right to sit there and talk about how you are so worthy and above it all?
And lastly, I'd bet the farm you both went to church recently or hold Christian values. Why don't you re-read your posts and ask yourselves if Jesus would have spoken the same words in your self-righteous rants.
February 14, 2010 at 9:19 a.m. ( permalink | suggest removal )
zuko (anonymous) says...
Rune 04,
You seem like a reasonable guy and the majority of my ire was directed to CornBrain below you, you happen to be guilty by association.
But still, these people were not " caught by the economy". A few very nasty greedheads and criminals were allowed to run amuck, with the blessings of our government, and siphon off enough wealth to collapse the entire world financial system. The "economy" had nothing to do with it.
Are they also responsible for the loss of their 15 year job in the mill because it was shipped to China?
Are they responsible for 5 dollar a gallon gas - that crippled their home budget's recently because of unregulated speculation in the commodities market?
Are they responsible for the 2 million lost jobs in the North East and Midwest lost because of lucrative corporate mergers and dismantling sell-offs?
And please stop perpetuating this ridiculous myth that that these folks were living beyond their means. They were living just like everyone else: making decisions based on the circumstances in front of them. Were they ignorant? Most definitely. But blaming millions of people for willfully causing their own ruin is the worst kind of propaganda.
February 14, 2010 at 9:36 a.m. ( permalink | suggest removal )
snowhater (anonymous) says...
Wow! I'll bet you've never come up on hard times, Joan. It sounds to me like you married well - never had a financial emergency in your life - took on a job as a real estate agent when your kids went to school to "fill a void" and became somewhat successful at it. It wouldn't matter if you lost your job because Daddy can pay the bills. Am I jumping to conclusions and pre-judging before I know all the facts? Yes, of course I am. You are doing the same thing by making all these reinstated mortgage holders look like deadbeats and financial scourges to our nation.
My guess is, there are probably a slew of criteria that have be met for any financial institution to allow a reinstated mortgage - past credit history, initial equity in the house itself, the condition of the property, the reason for non-payment, current employment, etc. I can't imagine it would be financially beneficial to any mortgage company and/or bank to do this without good reason to believe they would recoup their money at some point. Do we know what kind of interest rate they are charging for these?
Believe me...I'm no fan of this type of action - you're right, it does hurt homeowners not effected by this recession - but it does seem preferable to having another homeless family and a vacant house in your neighborhood that may take years to sell. Before I back your call for arms and join in your outrage; I think I'll look further at this and decide then.
I also think you're a little bitter because an agent isn't involved in this transaction at all. Hopefully we can hear from someone who is going through this currently.
February 14, 2010 at 9:37 a.m. ( permalink | suggest removal )
Rune04 (anonymous) says...
First of all, I didn't think I was "ranting." And I thoughourly disagree with your premise that they could afford the house because the lender said they could. What about a little personal liabilty here? How about the stories of people buying $700K house while making $50K a year. Did they really think this was affordable? Is everyone the victim all the time? About the children being affected, you are absolutely on the money, but it is not my doing that has done this. Plese don't misconstrue what I am trying to say. I truly feel sorry for the people who have lost their jobs and can no longer afford their homes. These are NOT the people I am talking about. I am talking about the people who are currently walking away from their homes because they know what a bad investment it is to keep making the payments.
As far as the banks being bailed out, I hope you understand that you and I have bailed out the banks and that our children and grandchildren will being paying the bill for that. This would be the "senseless, wasteful Gov't program of my choice."
About my lifestyle, I happen to be lucky enough that I have not lost my job or my home. I have only had monetary loses with my investments (my home being one of those). But let me ask you, am I supposed to be happy about that? Should I feel guilty because others have it worse than I? Sorry, I have compassion, but no guilt.
If I would put the blame on anyone or anything, it would be our educational system and lack of family values we have today.
February 14, 2010 at 9:55 a.m. ( permalink | suggest removal )
jcurbow (anonymous) says...
Not bitter at all. It's about getting the Real Estate Market back to where it was when my parents bought their first home. They had to come to closing with a vested interest and skin in the game to buy the house. If we get back to those roots everyone will be much better off. Anyone should be able to buy a house based on the regulations that were prevalent back then; at least 10% down and debt to income ratio at a percentage that made sense. Too many people bought homes to keep up with their neighbors when they knew they simply could not afford them. My heart goes out to those that got caught up in the economic downturn because of the housing debacle and to those folks, there should be leniency and programs to help get them back on their feet. Let's make sure those programs make sense. I've helped many in distressed situations that are by no means "dead beats." Many are well educated, sharp, contributing to society. I'm not talking about those people. Many of those got caught up in situations that are not their fault.
To bring clarity to your question; I was in the Corporate world for almost 17 years and worked my way into upper management making a healthy living on my own. I never got married with the intention of thinking it was my husband's responsibility to provide financially.
February 14, 2010 at 9:57 a.m. ( permalink | suggest removal )
zuko (anonymous) says...
JCurbow,
You tried a little back peddling there, at least you made the effort. But you're still basically tunnel visioned concerning the whole afffair.
A better guess is these few pilot programs are another PR stunt to stall off public pressure until the big lenders can cut more deals with the Govt. The market is still shaky at best and many see another dip coming.
The idea that lenders will be pursuing re-fi's -at today's appraisal values - doesn't pass the laugh test - except in some very limited geo. areas. Why would they risk financial exposure to another round of diminishing housing prices - when the government's just around the corner waiting 'till the public can't no longer take the pain? The banks know this day is coming. You can't be kicking out thousands of American families a month indefinitely.
AND NO! The banks aren't "as liable as the the borrower that took it." They are infinitely MORE liable. Banks have a FIDUCIARY responsibility to act in the best interests of both their stock holders AND the borrower. Lending money in America isn't supposed to be some sort of three-card-monty hustle where you're watching one hand while the real deal is going on somewhere else. The Real Deal going on...was the instant selling of the loans by the originator - to be used as inflated collateral for exotic derivative trading.
The Borrower (most) assumed the home they were buying was actually worth what they were promising to repay. The Lender never had any such expectations. Their only desire was to sell the loan before sundown and pocket the fees. THAT'S where the Lender's are guilty as hell.
Whatever the borrowers ethical transgressions, they pale to invisible when placed next to the actions of the real culprits here.
February 14, 2010 at 10:02 a.m. ( permalink | suggest removal )
snowhater (anonymous) says...
When I bought my first home, the norm was 20% down payment (10 would have been nice...) and yes - we had to jump through hoops to prove we could afford a mortgage (it wasn't as easy as pulling a credit score back then). If the banks could have kept that standard we wouldn't be in the mess we are now. But that's never going to happen again. There is no way the industry can back step without crashing and burning.
Your article seemed a little sensational compared to the blogs you've posted after the fact. I hope the readers realize; this type of mortgage help is rare (hopefully) and is only granted when all the stars align correctly.
In a perfect world, this would not be tolerated. But it's not and if this type of bail-out is constructively used I think it is a better idea than the alternative, particularly for disadvantaged neighborhoods.
BTW - I did say I was jumping to conclusions on your background. But your article did sound a little self-serving.
February 14, 2010 at 10:18 a.m. ( permalink | suggest removal )
jcurbow (anonymous) says...
Zuko,
I agree with some of your analogy! At the end of the day, you and I are responsible for our decisions. If the bank was willing to give us 100% of the appraised value of a property in the form of a loan and we took it, then we're accountable. That's why I like borrowers being accountable with skin in the game; 10% down and regulations on debt to income ratio.
I agree there were unethical lending practices going on; I'm seeing the repercussions of those loans daily. I've experienced the homeowners that took these loans and thought the boom was here to stay. Some of them now have to sell because they're going through a divorce, lost their job, have had financial hardships due to health issues, etc...whatever the reason, many of them are hard-working Americans that got caught up in some bad times. Many of them are doing the right thing and trying to recoup some of the loss by short selling the property to curb the deficiency.
No matter how you slice it, no one wins with all of these foreclosures.
February 14, 2010 at 10:21 a.m. ( permalink | suggest removal )
jcurbow (anonymous) says...
Snowhater,
Thanks for your input! We're already seeing tighter regulations on qualifying...
Let's hope it makes the appropriate impact.
February 14, 2010 at 10:28 a.m. ( permalink | suggest removal )
Rune04 (anonymous) says...
I must say I have never seen so much discussion to a story on real estate. Very good discussion and good points made by all.
February 14, 2010 at 10:33 a.m. ( permalink | suggest removal )
jcurbow (anonymous) says...
AGREE!!!! GREAT DEBATE!
February 14, 2010 at 10:45 a.m. ( permalink | suggest removal )
zuko (anonymous) says...
Rune,
Nobody's children are re-paying the BANKS TARP Money.
http://www.bu.edu/today/world/2009/12/17/why-are-banks-rushing-repay-tarp
Stop listening to so much talk radio.
And how many 700K houses REALLY went to 50K buyers. 1% - MAYBE, for the sake of argument. In practical terms, that Urban Myth isn't even statistically relevant. Again, turn off the Rush Limbaugh and get some facts.
Did borrowers over borrow? of course they did. But in a real estate market burning white hot in 2005, how would you expect the average family to buy a home? Again, maybe you live in the mid west or some area where home prices inflated at a reasonably sane rate. But in most of the metropolitan areas, it was crazy land. And renting was equally expensive.
Even if that 700K home did get purchased by an unqualified buyer....DON"T FORGET, in many areas of the country home values were rising consistently at 15 - 25%. That home may have increased in appraised value 400K over three years. A pretty good investment for a guy making 50 K a year I'd say.
As far as family values goes, there's no more or less "family values" than there's ever been.
It's our government's values which have been so incredibly destructive.
Our people see the virulent combination of a corrupt government idly watching our economy gutted by their friends and cronies for personal profit & and ten bloody years of needless war and destruction - slaughtering hundreds of thousands of innocent people - that is merely a blurb once in awhile on page 7 of the paper.
Our government has shown, repeatedly, a complete disregard forth the value of human life at any level.
This is why our children and fellow citizens have grown numb to those things you call family values. They learn by example.
February 14, 2010 at 10:45 a.m. ( permalink | suggest removal )
Rune04 (anonymous) says...
zuko, I thank you for pointing out my mistake. I didn't mean our children will be paying back the TARP money per se. They will be paying for the aftermath of this. I felt then, as I do now, that the explanation of the banks being too big to fail was flawed. I certainly can't argue that the government has created the biggest part of the problems we are having today. Unfortunatley it has gotten to the point that even if we vote out everyone there now and make the system work for us again, if it ever has, it will be decades before the wrongs can be made right.
February 14, 2010 at 11:25 a.m. ( permalink | suggest removal )
Rune04 (anonymous) says...
By the way zuko, I never listen to talk radio. I don't want or need Limbaugh or someone on NPR to tell me how to think. I have to confess that I still subscribe to the Post-Dispatch. I'm hooked on the comics and editorials, which are pretty much the same thing!
February 14, 2010 at 11:43 a.m. ( permalink | suggest removal )
Rune04 (anonymous) says...
One more thought and I shall retire to a good book. I place Rush Limbaugh second only to Harley-Davidson for expertise in marketing a poor product. He has made himself an influential and very wealthy man.
February 14, 2010 at 11:54 a.m. ( permalink | suggest removal )
ldffly (anonymous) says...
Hey zuko! Have you found that radicalized American proletariat yet?
February 14, 2010 at 7:36 p.m. ( permalink | suggest removal )
kevincottrell (anonymous) says...
Now, for the good news. STL Foreclosures were DOWN more than 40% in 2009 vs. 2008. Most of the subprime based defaults are centered in other parts of the US vs. STL as the non documented and exotic loans were rarely used here.
As far as the program that Joan's discussing - its getting quite a bit of press and buzz - however, we have not been able to confirm a single verifiable case of it in the St Louis market (well, in any market in the US) where a party can produce written proof of the scenario described being applied by the lender.
February 17, 2010 at 4:37 a.m. ( permalink | suggest removal )
jcurbow (anonymous) says...
Freddie Mac is experimenting with these so-called mortgage reinstatements. For example, someone loses their home to foreclosure. So legally, it's no longer their home. Normally, they move out and the home becomes a REO listing. Freddie Mac is now offering mortgage reinstatements to those defaulted borrowers. They are immediately able to secure another mortgage for the foreclosed amount...and the prevailing FHA rate. Yes, this means a just foreclosed on borrower can in essence keep their home with all the negative equity (and back taxes, HOA etc) wiped clean. This is currently being TESTED on those borrowers that qualify.
Additionally, Citi Mortgage plans to announce a pilot program that would allow delinquent borrowers who don't qualify for or decline mortgage relief the opportunity to stay in their homes without making payments for up to six months before turning over the keys, in return for keeping the property in good condition. The bank is estimating up to 20,000 borrowers in Texas, Florida, Illinois, Michigan, New Jersey and Ohio could be eligible.
Kevin is right in that foreclosures in MO are down. This is a national initiative and many of these programs are being tested. The concern: the lenders are living in fear that the foreclosure waves will continue for the next 3-5 years. To those who are facing foreclosure in our area, it's important to understand and educate yourself on some of the programs and options being tested. Lenders are struggling to make a lot of these programs work but they are testing alternatives for homeowners who face foreclosure and don't qualify for mortgage relief in the form of a loan modification or potential short sale.
February 17, 2010 at 6:49 a.m. ( permalink | suggest removal )