Tuesday, November 25th, 2008 at 10:04 AM
More on Loan Mods
I know I’m beating a dead horse with this constant coverage on loan modifications, but with the foreclosure train at a standstill, the 2009 market will hinge on how successful the loan mods will be over the next 2-3 months.
cnbc.com’s Jane Wells took a tour of Countrywide’s loan mod facility in Simi Valley:
http://www.cnbc.com/id/27907758
Some of the excerpts:
I watched one of them in action. Tammy Tipton was on the phone with a man in trouble with both his first and second mortgages. Adding to the problems, both mortgages are owned by different outside investors (85 percent of the loans Countrywide services are not owned by Countrywide but by someone else who must approve any modification). “I’m going to be taking this to the investor, and I’m going to be requesting a step plan,” Tipton tells the man over the phone. The step plan will lower the interest rate on his first mortgage to 4.375 percent for the first year, gradually increasing it to 6.375 in the third year, where it will remain fixed. As for the second mortgage, well, she’ll try to see if the investor will budge. “I don’t wanna get your hopes up regarding the second, but I’m definitely going to give it a shot,” she says.
Resolving the second-mortgage issue is where the loan-mods will live or die. Even though the second-loan holders have no leg to stand on, unless they willingly give up, the success of loan mods will be challenged, to say the least.
Some interesting facts Steve Bailey gave me: In 2004, three out of four people going into foreclosure could sell their way out of the problem. In 2008, only one out of a hundred is able to do sell the home for enough to pay off the mortgage. Sixty-one percent of those who stop paying their mortgages do so due to “significant loss of income,” while only 3.3 percent of foreclosures are due to ballooning mortgage payments.
I asked Bailey if some people have stopped paying their mortgages intentionally–even though they have the wherewithal to stay current–just to cut a deal with Countrywide. “I think we’re more worried about it than we’ve actually seen it,” he says. But one thing Bailey is noticing is new maneuvering by some people seeking a short sale. “This is a market that absolutely invites people to try to game the system,” he says. This next video clip is Bailey giving a unique perspective.
The second video in the article is an instant classic. She asked how many people are getting away with gaming the system, and pulling off a fraudulent short sale, and he said, “How often people achieve it is very low, how often they try it is more than that.”
Finally, Bailey says it’s hard to come up with a solution when a homeowner doesn’t want to stay in the home. Seven percent of those in trouble with their mortgages don’t want to be saved–they just want out. Maybe they’ve gotten divorced, or don’t like the neighborhood. But most people do want to stay, and it’s up to Bailey’s employees to see if they can come up with a plan.
Seven percent sounds very low, doesn’t it?
Posted on Tuesday, November 25th, 2008 at 10:04 AM in Loan Mods | 11 Comments » | 
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Seven percent ADMIT they just want out.
An additional unknown percentage don’t want to admit they’re financially irresponsible, another unknown percentage don’t even realize they’ve made a mistake, and yet another unknown percentage are waiting for the bailout they’re entitled to.
The Blur | November 25th, 2008 at 10:18 amSeven percent of teh people that contact the mortgage lender want to leave the home. What percent of people do not go through the effort to contact the mortgage lender?
I would like to know how many people requesting a short sale purchased a car more expensive than a two year old civic within six months of requesting a short sale. I would call a $10K – $12K Honda Civic purchase a neccessity purchase and anything more elective. I think there are a lot of people who consider their consumer spending neccessity and that the bank should suffer as they spend.
LV Renter | November 25th, 2008 at 10:24 am“Sixty-one percent of those who stop paying their mortgages do so due to “significant loss of income,” while only 3.3 percent of foreclosures are due to ballooning mortgage payments.”
I find this very surprising. I expected this to be the reverse (or at least higher on the balloon mortgage reason). Has the downturn in the job market been going on longer than I thought?
LC Jim | November 25th, 2008 at 12:49 pmI don’t think you can ever give any credence to the percentages that get thrown out there in these kind of puff pieces. If the reporter was doing her job, she would follow up and verify what the source of the percentages they throw out are based on.
Its funny how the tone on this piece is of a relaxed atmosphere where Countrywide’s loss mitigators are portrayed as knowledgable mediators going to bat for the borrower and investor. My daughter goes to summer camp in an area right behind the Countrywide Simi Valley facility. Driving by there last summer, from the outside looking in, it was secured behind a barred gate and had more of a Guantanomo feel to it.
Kingside | November 25th, 2008 at 12:58 pm93% want a handout. 7% are honest about their situation.
BDiego | November 25th, 2008 at 3:31 pmI have an interesting question. I just got off the phone with one of my relatives, and they’re trying to get a loan mod from their bank to lower her interest rate. I ask in disbelief, “But you have 15% equity, why would the bank agree?” And she tells me she’s going to try anyways. She’s current on her payments with a low 30 year fixed, so it’s hard for me to see what the fuss is over trying to lower her interest rate.
So my question is, is there any equity disqualifier for loan mods? I guess there’s no harm in trying, but I think it may just be a waste of time.
BDiego | November 25th, 2008 at 6:52 pm“Sixty-one percent of those who stop paying their mortgages do so due to “significant loss of income,” while only 3.3 percent of foreclosures are due to ballooning mortgage payments.”
I’m guessing this is number is hard to determine. If I had lied about my income 3 years ago and was now looking for a loan mod, I guess I’d have to say I had a “significant loss of income” when I submitted my current pay stubs, no?
lgs | November 25th, 2008 at 9:52 pm7% seems high to me; these are the people who want out instead of wanting a payoff and being allowed to keep the house. That just means the government’s efforts have convinced 93% of the people who cannot pay the loan they have that they will get a bailout instead.
I’m also guessing the “significant loss of income” in most cases is derived from the inability to use their home as a cash-withdraw atm machine any more, and they were counting on that as income previously. Either that, or the lying about no-doc income previously. Loss of “income” is the effect of gambling on housing as a get-rich-quick scheme, not the cause.
Nick | November 26th, 2008 at 5:56 pmBingo, Nick!!!!
You win the prize!
The fact that they can’t tack on an additional $100K a year in mortgage debt means they’ve “lost income”. The other issue is the fraudulent income stated on their “no-doc” loans.
CA renter | November 27th, 2008 at 1:45 amI agree with lgs and Nick–they cannot still claim the income they originally said on their applications; now if the bank was seeing this DOCUMENTED–it would , indeed, be shocking. But with someone just “saying so” it is no more shocking to me than to find out that all these people with little to no skin in the game can no longer pay their loans.
shoppingaround | November 27th, 2008 at 7:41 pmI think the percentages may reflect the fact that people falling behind on their mortgage payments *only* because of rate resets on underwater loans are nowhere near the crisis-level numbers the media make them appear to be.
With an estimated 1,200,000 jobs lost in 2008 (and still a month to go!) and an estimated 47,000,000 people without health insurance, the number of people who can’t make their mortgage payments due to job loss or a savings-depleting catastrophic illness is probably a much larger mortgage “crisis” facing America today.
GeneK | November 29th, 2008 at 1:29 pm