I am not the only blogger who bemoans the Administration’s feeble foreclosure prevention program.

The Huffington Post has an excellent story on the failure of HAMP, due to not getting the mortgage companies to voluntarily reduce the principal balances.

That is, to agree to lower the total amount owed on a house.

What happened is, the mortgage companies took their foot off the gas last year when judicial mortgage modification was before Congress.  Once they defeated that in the Senate, it was back to business as usual.

Sure, they told the politicians, hey, no need to force us, that would mess up the mortgage market, and, besides, we are fixing the problem ourselves.

Watch that moral hazard, letting people off the hook for the amount they agreed to pay for a house just because it went down in value.

Well, I am not sure how much money is left in the moral hazard account, after the trillions spent guaranteeing and bailing out the mortgage companies who did, after all, make hundreds of thousands of bad loans.

Many people tell me, they do everything the mortgage company asks under the HAMP program, only to have the rug pulled out from under them.

MSNBC tells the story of one such couple, who ended up owing MORE on their mortgage, $20,000 more.

As opposed to a principal reduction, that would have reduced everyone’s losses.

Even the investors in the securitized trusts that actually own the mortgages have figure it out.

Quoting from Shahien Nasiripour’s piece in the Huffington Post,

” . . . .Micah Green, a partner at Patton Boggs LLP, a Washington law firm that represents a mortgage-investor group of asset managers who hold more than $100 billion in residential mortgage-backed securities.

Without principal reductions, “there is a growing realization within the administration and on Capitol Hill that it’s very difficult to bottom out the housing market,” Green said.

“The interests of investors are totally aligned with those of homeowners,” he added. “Investors are willing to put money on the table and frankly take their losses, which they already have.”

Foreclosures continue to rise, there will be even more, house value continues to decline, making even more homes worth less than what is owed on them.

Come summer, it will be impossible for the White House to deny that the crisis is worsening and the political fingers in the dyke will not prevent the dam from bursting.

HAMP Not Working, And Big Brother Knows It

Related posts:

1. Fannie Mae Bailout
2. TARP and HAMP Require That Foreclosure Be Suspended
3. What Is Happening With Mortgage Modifications?

But not everywhere.

Check with an attorney in your state.

In Michigan, we have foreclosure by publication, an auction process, or through a court.

If the mortgage company bids the amount you owe at the foreclosure auction, you owe them nothing.

However, if they bid less, and it is a reasonable market price, you can be sued for the deficiency, that is, the difference between what they bid and what you owe.

Florida is another state that allows mortgage companies to sue after foreclosing.

If the first mortgage holder forecloses in Michigan, and gets the house back, the second mortgage company gets nothing.

The second mortgage company can sue for whatever amount of money is owed.

In judicial foreclosure, the mortgage company sues in court to get the house back.

And, the mortgage company can get

Of course, any suit for money by a mortgage company can be stopped by filing bankruptcy.

What if you have two mortgages, and do a short sale?

Well, as a lawyer, what can I say?   It depends.

The second mortgage company has to sign off for title to the real estate to transfer, that is, for you to sell your house.

But signing off their lien on the house does not mean you do not owe them any money, it just means they do not have your house as security for the loan any more.  You still owe on the note, and they may forgive the loan, or not.

Same with the first mortgage.  They can sign off their lien on the house so the short sale takes place, but that does not automatically mean that you do not owe them any more money.

I Lost My House, Can The Bank Still Sue Me?

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2. “Lost Mortgage” Case Highlighted in Atlanta Newspaper
3. Short Sales and Bank of America

And the trend?  Bound to get even worse.  Record high default rate now, as over 13% of homeowners are behind on their mortgage payments.

American homeowners now $745 billion underwater on their mortgages, according to First American CoreLogic.

Sounds low to me.

Why? Interest only mortgages, which are not sub-prime, which switch over to an amortized payment, $47 billion in the next year, $80 billion in the next two years.

Not to mention, more ARMs (Adjustable Rate Mortgages) resetting this year and next, with expiration of teaser rates, payments will go up, more mortgage defaults, more foreclosures.

Interest only mortgages, which are Alt-A or prime, not sub-prime, will switch over to an amortized payment, $47 billion in the next year, $80 billion in the next two years.

Amortized payment means a payment which will pay off the loan over a set time period, usually 30 years.

When you are paying interest only, of course, you are not paying down the principal, or total, balance that you owe on the loan.

Mortgage payments will go up 15% on interest only loans that convert, just to get a fixed payment that will pay off the mortgage. Payments will go up more if interest rates go higher.

There is virtually no room for them to go lower.

And 61% of the modifications actually agreed to by mortgage companies since October 1, 2008, are in default again already.

Government’s solution?  Hey, if we pay the banks some of their losses, maybe they will finally start to write down principal balances.

Gee, that sounds an awful lot like the banks’ solution.

Only 21,000 of the loans modified in the third quarter of 2009 included principal writedowns, or deferrals.

I bet, more deferrals than actual writedowns.

For one thing, investors, who actually own the mortgages somewhere down the securitization line, are suing when principal is written off.

What good does a deferral do for the homeowner?

My favorite quote Business Week story linked to above;  ”Mark Zandi, the chief economist for Moody’s Economy.com, who has testified before Congress on housing issues, proposes that banks receive a federal match of $1 for every $2 in principal reductions they offer to homeowners who were victims of predatory lending practices.”

So, let’s get this straight, mortgage company breaks the law, lends money it should not, probably cheating the homeowner, makes a profit.

Homeowner now stuck in home worth less then is owed, with unaffordable payments.

Remedy?

Another bailout for the crooked mortgage companies.

Well, they did spend enough of their ill gotten gains to buy both political parties, as each has supported TARP and further bailouts that have insulated the banking and mortgage companies from the consequences of their own actions, at the expense of you and me, the taxpayer.

Let them eat cake!

Or something, besides an open invitation from our crooked Congress to tap into the Treasury.

Mortgage Foreclosure Crisis Continues

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3. Sub-Prime Crisis Solutions? Mortgage Companies Try Again

NOT ENOUGH!

Again and again, I keep saying, judicial mortgage modification, which was up in the House again last week, and lost, is the best solution the government can provide
How are the government encouraged mortgage modifications going?  Are mortgage modifications working?  What effect is the HAMP program having on foreclosures?

As I hear all the time, only one third of homeowners trying to get HAMP relief have sent back the paperwork to get a mortgage modification.

Paperwork problems.

And the mortgage companies blame, who else?  Their customers!

Of course, what my clients tell me is, what documents they are requested to send keeps changing.

Banks who threw mortgage money out the window to anyone who could fog a mirror now claim people cannot get the right mortgage modification forms back to them in time.

“Our customers are just not contacting us, not following through, not sending the information we need to review so we can help them.”

Yeah, right.

On top of that, even though very few get a mortgage modification, many of them are already behind again.

HAMP program not performing as we were told it would when announced, with the usual fanfare.

As the government “solution” founders, the foreclosure problem gets worse.

More foreclosures coming.

Which means, more pressure on home prices, which will continue to go down, which means more homes worth less than what is owed on them, which means more foreclosures  . . . .

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2. What’s happening in Illinois Mortgage Foreclosures?
3. Mortgage modifications & institutional memory

Well, art is where you find it, and David Runk, AP writer tells the story of a couple of artists who want to freeze an abandoned house, take pictures of the process, and, of course, make a movie about the project.

I will try to soften my rant, but it ain’t easy being in the worst governed city in the worst governed state in this country at this time.

Dave Bing, basketball great, is the current mayor, having taken over for deposed felon Kwame Kilpatrick, whose mother is my Congresswoman.

She staved off a primary challenge form another black woman (the District is over 90% Democrat) last time around, by finding another black woman to run, so she could be re-nominated with less than 40% of the vote.

What did she say?  Did she talk about what she could do for the city, about enacting Chapter 13 bankruptcy reform, that would address the crisis of abandoned homes?  Nope, she said, I will have this seat until I retire. Our governor, fortunately term limited, has presided over a state economy that led the country into recession, putting all her eggs in the dying domestic auto industry, as the State has bled jobs going on six consecutive years.

It takes people with jobs to buy houses.

Many of these homes would not have been abandoned, as the owners would have paid something, probably more than they were worth.

But the mortgage companies made bad loans, for more than the homes were ever worth, betting that real estate values would always go up, and mortgage interest rates would always stay low.  When the bubble burst, the adjustable rate mortgages blew up, the homeowners could not afford the increased payments, could not refinance when the homes were now worth less than the mortgage balance, and could not get mortgage modifications.

I hope the artist’s project calls attention to this issue, and to a remedy that would actually help, and cost the taxpayer nothing.

Related posts:

1. Foreclosure Crisis: Civil Rights Complaint Filed Over Subprime Loans
2. Michigan Foreclosure Law Changes
3. Michigan Foreclosure Prevention

Usually, the homeowner has tried to get a mortgage modification or other relief, and makes some payments, misses some, and tries to send in what he or she can.

A strategic mortgage default, as explained by Larry Doyle, is a homeowner who is current, and just stops paying.  Period.

Why would anyone do that?

The statistics show these defaults are in areas with high numbers of homes worth less than what is owed.

So, the homeowner may have enough money to make the payment, but decides, hey, I owe $300,000 on this place that is now worth only $150,000, why should I keep paying?

I talk to people who tell me hey, the guy bought the house next door, same as mine, for $100,000.  It had been foreclosed.

And I owe $200,000 on my house, can you help me?

No, not if you can afford the payments out of your income.

Worse yet, you are paying your taxes, too, so they got you going and coming, getting money for their mortgage out of your right pocket, and bailout money from the government (you) out of your left pocket.

There still is no way to force mortgage companies to modify a mortgage.

And only 1.9% of the mortgages actually modified last year reduced the principal.

Some people bought a new house and walked away from the old, so called buy and bail.

Last year Fannie Mae and Freddi Mac issued new rules to prevent that from happening.

But, depending on your state’s foreclosure law, you can stay for many months in your home, without making any payments.

Just to top it off, neither the mortgage industry nor the government factored in these type of defaults in estimating future foreclosure rates and mortgage losses.

Can I Just Walk Away From My House and Mortgage?

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So the mortgage companies screamed to the politicians and the public, holding press conferences to announce the billions of dollars they set aside to re-work loans for people so they could avoid foreclosure.

So where are these mortgage modifications?  What happened to the billions and government programs to help homeowners?

Most homeowners I talk to cannot get anything approved.

Alexandra Andrews and Emily Witt may have the answer, exposing the secret test that the mortgage companies run to see if they will offer a mortgage modification.

There is still no way to force them to change the terms of the first mortgage on your principal residence.

So, homeowners understandable have to provide tax returns, pay stubs or other proof of income, credit report or other documentation of their debts.

And there are those formulas about percent of monthly take home pay versus mortgage payment.

So, what is the holdup?  What is the basis for so many denials?

“NPV test fails”  What the  . . . .?

Well, NPV equals Net Present Value.  Of your house.

OK, makes sense, value of your home should be a factor in the process of getting a mortgage modified.

Seems the mortgage companies will NOT modify a mortgage if they think they can get more money by foreclosing.

There is a surprise!  Mortgage companies motivated by money.  Who’d a thunk it.

So, how is this NPV determined?

Ooops, sorry, secret formula.

“The Treasury Department refused to release the exact formula for the NPV model  . . .”

That would be the same Treasury Department giving out hundreds and hundreds of billions of dollars to save the crooks, ooops, sorry, mortgage companies that created this mess.

So, not knowing what went into the formula, you do not know if it accurately estimated the cost of foreclosure in your state (varies according to state law) or what they use for the value of your house.

Once again, the mortgage companies win, the public loses.

Can I Get A Mortgage Modification?

Related posts:

1. Will I Get A Modification From My Mortgage Company?
2. Mortgage Modifications: Get it in Writing!
3. Tiny Percentage Getting Help Through Modification Program

DO NOT PAY ANYONE FOR MORTGAGE MODIFICATION ADVICE.

At least, until you use the free counselors available.

You need to have your income information, last year’s tax returns, and proof of your income year to date, to make meeting with the counselor and mortgage company meaningful.

The hoops you jump through can seem complex, but it is worth it, if you want to use every thing you can to keep your home.

At or after the meeting with the mortgage company representative, which will probably be the lawyer hired by them to do the foreclosure, you find out if you qualify for a mortgage modification.

The first qualification test is whatever guidelines apply to your mortgage, FNMA has its own, some of the servicers have their own, HAMP has its set.

If you do NOT qualify there, you still get another chance under the state guidelines.

These are, amortizing 80% of the principal balance, after waiving late fees, over 40 years, from the date of the modification, at 3% interest.

If any or all of these get that mortgage payment down to 38% of your gross income, you qualify for a modification.

Your mortgage company does not have to agree to any modification.

But, if they do not, they have to foreclose through the court, and not by publication in the Legal News.

This opens up the chance to use the produce the note foreclosure defense, used so effectively by Jacksonville Florida attorney Chip Parker, and other contributors to this blog, more on that in another post.

Related posts:

1. What Is The New Michigan Foreclosure Law?
2. Michigan Foreclosure Law Changes
3. What Is A Motion To Lift Stay On My Primary Residence?

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Mathew Padilla covers the story in California, but cites another story in Wisconsin, and I know it is happening in Michigan.

Daily Kos is even blogging on mortgage companies abandoning homes.

Mortgage companies decide they do not want to take title to a property that needs fixing up before it can be re-sold.  As owner, they become responsible for property taxes, keeping the property up to code, following city ordinances about cutting the grass and so on.

There is no way for you to force them to take title to the property.

This is probably be even worse for the homeowner than a completed foreclosure.

Now the homeowner is still on the hook for keeping up the property.

If you still live there, fine, you can cut the grass and so on.

But, if you moved already, you have problems.

Even if you file bankruptcy, you cannot force the bankruptcy trustee to take title to the property.  It is unlikely a trustee would do that.  Unless there is some way to make money off of the property, trustees will keep their hands off.

Hey, maybe those mortgage companies should have done modifications with the homeowner, who would then still be taking care of the house.  And the mortgage company would be getting some payment.

But real mortgage modifications are just not being done, as Kansas bankruptcy attorney Jill Michaux blogged here recently..

The real solution remains judicial mortgage modification.

Related posts:

1. What Happens When My Mortgage Company Goes Bankrupt?
2. Foreclosed By Mortgage Company That Tricked Me?
3. Will I Get A Modification From My Mortgage Company?