Wednesday, February 25th, 2009 at 9:26 AM
57% of Loan Mods Defaulting
I’m taking an hour today at lunch to spend with Peter Hong of the L.A. Times looking at good blog material for both of us – stay tuned.
In the meantime, this from Bloomberg:
WASHINGTON — Fannie Mae and Freddie Mac need to relax rules for a loan-modification program that promised to cut mortgage interest rates and lengthen terms for troubled borrowers, the chief economist for the companies’ regulator said.
Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) have sent 90,000 letters to borrowers who have missed at least three payments, inviting them to participate in the so-called streamlined loan-modification program, since the plan was announced in November.
“Early indications are that several of the program guidelines should be liberalized to reach a broader population and to create a lower, more affordable payment,” Patrick Lawler, the chief economist of the Federal Housing Finance Agency, said in written testimony Tuesday in Washington to a House Financial Services Committee panel on housing.
The program is separate from an initiative proposed by President Barack Obama last week to have Fannie and Freddie refinance or modify more mortgages. The existing loan-modification program is designed to reduce a borrower’s monthly payment to 38 percent of salary by reducing interest rates, extending repayment terms and, in some cases, reducing the outstanding principal.
Joseph Evers, deputy comptroller at the Office of the Comptroller of the Currency, told lawmakers Tuesday that roughly 57 percent of Fannie and Freddie’s loan modifications made in the first quarter of last year defaulted again within six months of the modification.
Fannie Mae and Freddie Mac own or guarantee about $5.3 trillion of the $12 trillion in U.S. residential mortgage debt. Rep. Maxine Waters of California, a Democrat and chairwoman of the housing subcommittee, said companies that collect payments, deal with delinquencies and provide other services for overseeing loans aren’t working hard enough to prevent foreclosures. “I have experienced firsthand the challenges faced by borrowers who want to stay in their homes and who want to get current on their mortgages, but they either can’t get their servicer to pick up the phone or they get wrong, misleading or unapproved information,” Waters said.
Mortgage executives from JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. also testified. Molly Sheehan, a senior vice president for JPMorgan’s (NYSE: JPM) home lending business told the panel that the unit has averted 330,000 foreclosures through modifications, repayment plans and other means.
The business has hired 300 new loan counselors, opened 13 homeownership centers in regions with high default rates, and expects to prevent a total of 650,000 foreclosures on $110 billion of loans by the end of 2010, she said.
Posted on Wednesday, February 25th, 2009 at 9:26 AM in Bailout | 45 Comments » | 
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Boys will be boys, and deadbeats will be deadbeats.
greenlander | February 25th, 2009 at 9:36 amJim I love your blog and the great information you give us. I find it’s true, honest even handed presentation of the real estate market, even with you being an agent
. However with this and most all blog I find the worse part of blogs are the comments section. People posted smug and ill informed pontificating on subjects with little knowledge of or education about. But I digress you are doing good work my friend it is appreciated.
Inland Empire | February 25th, 2009 at 9:46 amClearly this isnt working.. when will these clowns learn that they need this problem flush itself out? Maybe by 2010..
4s Renter | February 25th, 2009 at 10:35 amAnd I’m still paying rent while DEADBEATS continue to live in the house I should be able to buy.
shadash | February 25th, 2009 at 10:40 amReward failure and punish success. The results should not surprise. Tell Pete I said hi.
Rob Dawg | February 25th, 2009 at 10:47 amI agree with commenter #2. A bunch of bitter, fence sitters with no compassion for other people.
Basically, Republicans.
Remember, kharma is a B@#@H!
SEH Looker | February 25th, 2009 at 11:18 amMy company shut down in January. I am still paying my mortgage. In the meantime, I’m looking for another job. Sad to say that some deadbeats down the street are walking away, yet still drive their nice cars and wear their $180 jeans and $90 t-shirts. I can pay mortgage for a long time with emergency funds while I look for another gig. How come nobody is addressing the fact that the Obama plan only serves to ‘help’ smaller market FHA conforming mortgages? Why do I continue to pay my mortgage while others choose the easy way out? They say bad FICO scores will hamper ones ability to find a job and get future credit in the future. Bahooey – I see new credit rules and provisions to forgive those who have damaged credit in a few years moving forward. The forgotten class always gets screwed. I watched the CSPAN speed feed yesterday, but got tired of hearing the same old story. Ya think if I call Chase, they will be willing to work out a mortgage modification using my wife’s income as qualification for the new guidelines? But alas, no because those guidelines are for conforming loans less than $417K and we have no debt and a mattress stuffed with cash so to speak. Maybe I will give them a call this week to see what they can do – though I’m not holding my breath.
3clicks from da Beach | February 25th, 2009 at 11:20 amAnd on top of that, in the interim of the loan mod we’ve given more months of free rent.
sdbri | February 25th, 2009 at 11:25 amDoes that means 43% might work out?
DJ | February 25th, 2009 at 11:25 am(DJ says as he ducks under his desk)
Wow, the two most bitter posts were #2 and #6. Who pissed in your cereal?
sdbri | February 25th, 2009 at 11:26 amObviously I love the comment section. Smug? Yes. Ill informed? Debatable. I’ve made some mistaken comments here and been called out for them, so it can be a forum to learn. The discussions in this blog target educated people who are financially responsible. And if you’ve been financially responsible this decade, it’s hard not to be cynical about this mess.
I have no sympathy for deadbeats. As someone who’s lost my job twice before, I feel terrible for people who are losing their job today. It’s an awful experience. However, it doesn’t necessarily mean I have a lot of sympathy about these people getting foreclosed on. If I lose my job tomorrow, I’ll be okay because I have a savings account. I chose it over fancy cars, lavish vacations, or a mortgage that’s out of my league. Furthermore, I would never take on a 30-year financial obligation without considering the consequences if I lost my job. So, again, it’s hard not to be cynical.
The Blur | February 25th, 2009 at 11:30 am3clicks, your post came up while I was writing mine. You’re the exactly the type of person I have respect for. It’s awful about your job, I’m truly sorry, but your financial responsibility will pay off in the long run.
The Blur | February 25th, 2009 at 11:36 amI think what we’re really seeing here is people who desperately wanted to become homeowners continuing to torture themselves as they desperately try to remain homeowners, even though what they really need to do is face the reality that they grossly overextended themselves and go back to being renters for a while until they can come up with a workable plan for the future. Nobody is really “helping” them much by holding out false hope about their mortgages or home values.
It seems to me that most of the flippers, investors or other “deadbeats” are unlikely to even try to mod their loans so they can continue to pay 100% mortgages on homes that will continue to fall in value for the next few years. They’re more likely to just take as much free rent as they can until they’re evicted and then disappear in the night, leaving behind a wrecked house full of junk for JtR to have to clean up and unload for the banks.
GeneK | February 25th, 2009 at 11:38 amMaybe I am a smug and bitter fence sitter. I do everything correctly and get a raw deal from the govt. Meanwhile, I watch deadbeats are rewarded houses paid for by taxpayers while I rent an apartment.
Tell me, why shouldn’t I be smug nor bitter?
garbler | February 25th, 2009 at 12:02 pmshadash >> Shadup!!
Obama | February 25th, 2009 at 12:02 pmOT: 6363 Huntington Dr went pending two days ago.
Alex | February 25th, 2009 at 12:07 pmI just had a thought… If I lost my job and couldn’t find another one right away, not only could I not afford my mortgage, but I couldn’t afford to rent a place large enough for my family. What then? In that situation, it almost seems better to be a homeowner these days, because you can take advantage of “free rent” for a while, then get gubbermint assistance. As a renter, you either pay up or get the fork out.
Hmmm.
Kwaping | February 25th, 2009 at 12:07 pmDoes that means 43% might work out?
(DJ says as he ducks under his desk)
No, it means 43% make it 6 months. Any guesses as to which way that number is headed in the future?
Rob Dawg | February 25th, 2009 at 12:15 pmI wish they were so willing to make loan modifications for those with student loans. I was trying to help my gf with her loan details the other night. Good god. Too bad you can’t walk away and have the irs forgive you. Those with houses are truly entitled.
I wonder how many tax dollars will eventually be poured into that $5.3 trillion guarantee.
Genius | February 25th, 2009 at 1:32 pmThis is no news to me. Being a irresposible deadbeat is a personality trait that follows people their entire lives and has little to do with income level. If you look back at most of these people you’ll find a pattern of being late on bills, all the way back to being a slacker in school, etc., waaay before they became a “distressed” home owner. This whole bailout program is just throwing good money after bad, like when you give cash to a bum on the street, deep down you know he’s just going to buy booze, but you feel good about yourself for being compassionate for a few minutes. That’s what this bailout is but on a macro scale.
Bitterman | February 25th, 2009 at 2:01 pmwhy dont we just give them the dam house.
arizonadude | February 25th, 2009 at 3:08 pmIsn’t it interesting that this is basically the “Bair” plan. The FDIC has been running IndyMac for about 6 months at this point in time. Bair has trumpeted he plan as a cure for the housing market.
Where is the data on the Indymac mods? If it was so good wouldn’t they want to publicize acceptance rates, payment rates, recidivism rates?
Post #2, why do you think you are so much more educated than other people that post on here? Why are you convinced your view is correct and the view of most posters on here is not?
lv renter | February 25th, 2009 at 3:17 pmI’m tellin’ ya, debtors’ prison is the way to resolve this problem. Put the loser in jail and get “his” house back on the market for a market price. You can eliminate the moral hazard, now-homeless bum and price discovery issues in one fell swoop.
greenlander | February 25th, 2009 at 3:22 pmGeneK
I remember reading one article where someone who had a Option ARM was saying they could not afford the recast in six months. They wanted a lower payment.
Of course one way to avoid the recast was to make at least the IO payment.
Amazing how many people have now been convinced by the government (democrats Frank, Pelosi, Reid, etc) that they were ripped off when the reality is they knew they signed up for a loan where they did not have the ability to pay the interest.
lv renter | February 25th, 2009 at 3:22 pmGreenlander
Did you read the article in Bloomberg how foreigners are abandoning luxury cars in Dubai to avoid debtors prison.
lv renter | February 25th, 2009 at 3:26 pmI’m just saying that it’s awfully judgmental to lump everyone in the “deadbeat” category. There are always those that slip through the cracks and take advantage of the system. Personally, I believe that most people want to do the right thing, are not trained economists and had no idea that something like this could happen.
The American citizens voted in November for government help to stop this recession. Now, every time the government comes up with a plan, everyone screams in horror. It isn’t going to bail out everyone and it is going to help some irresponsible people that don’t deserve help. It isn’t going to perfect. Oh, and it isn’t going to do much here in California (or Florida or New York).
Every situation is different. In my neighborhood, people had been doing really well in business. When the economy went south, so did their business income. You couldn’t predict it. Nor was it irresponsible to buy a home that you could afford at the time – unknowing that the tides would change. Home prices were so largely inflated that you didn’t have much choice here in SD.
I’ll bet most of you would call yourselves Christians but really down deep, you only care about yourselves and your own pocketbooks. It’s really sad. Where’s your compassion for the downtrodden that have less than you? Where’s your patriotism? When everyone prospers, you too will prosper. We all need the economy back on track.
SEH Looker | February 25th, 2009 at 3:37 pmIt’s a good point someone here made that buying a house is a kind of unemployment insurance. 15 months of free rent, and any odd jobs you can do you can put directly into your bank account.
This is the true meaning of “throwing away your money on rent”. Deadbeats don’t pay rent.
sdbri | February 25th, 2009 at 3:40 pmSEH Looker,
“I’m just saying that it’s awfully judgmental to lump everyone in the “deadbeat” category. There are always those that slip through the cracks and take advantage of the system. Personally, I believe that most people want to do the right thing, are not trained economists and had no idea that something like this could happen.”
Boo Hoo. :’-(
I guess some people are going to learn the hard way that..
“If you think education is expensive try ignorance”
shadash | February 25th, 2009 at 4:00 pmwhy dont we just give them the dam house.
You might have something there.
If it didn’t cost the taxpayers a penny, and the MBS investors lost everything they risked, would that be a bad thing?
When they re-sell, 100% of proceeds goes to US Treasury for debt reduction only?
Jim the Realtor | February 25th, 2009 at 4:03 pmShadash, you crack me up. I’m sure some day you will be able to own a nice property. Have a little more patience. Longer than two weeks.
ChrisL | February 25th, 2009 at 4:08 pmSEH Looker:
“I’ll bet most of you would call yourselves Christians but really down deep, you only care about yourselves and your own pocketbooks.”
Not to spark off a religious debate, but egocentrism is the Christian way. Are you new around here or something?
When did compassion for those who commit fraud become a requisite of patriotism? When I’m paying the price for other people’s stupidity forgiveness is not something I have in ample supply.
Genius | February 25th, 2009 at 4:14 pm“Amazing how many people have now been convinced by the government (democrats Frank, Pelosi, Reid, etc) that they were ripped off when the reality is they knew they signed up for a loan where they did not have the ability to pay the interest.”
“Where’s your compassion for the downtrodden that have less than you?”
Flippers and deadbeats aside, I think there probably are quite a few people who did things “the right way” but have had their knees kicked out from under them by job loss, or didn’t know that they weren’t because they lacked the knowledge to recognize when some slick salesperson was BS’ing them. I feel sorry for those people, and if the refi proposals can help them pay what they owe, I don’t think it’s going to destroy the nation to give them a shot at it.
But if 57% of them are not going to be able to keep up a mortgage even if their interest rates are lowered and their principals are modified, we’re not doing that 57% any good by continuing to string them along with false hope. Somebody who is better at evaluating their ability to pay than they are needs to speak frankly to them and convince them to get on with living lives they can actually afford.
GeneK | February 25th, 2009 at 4:24 pmThis is absurd. Taxpayers must infuse Fannie and Freddie with more money because the system allowed people to get loans they shouldn’t have and foreign investors are saying no to mortgage backed securities unless they are fully guaranteed.
http://www.shocked.org/jabroni-homeowners-can-get-mortgage-modifications-what-about-stockholders/
We are only punishing the responsible!
shocked.org | February 25th, 2009 at 5:03 pmYeah lv renter, I read that article about abandoned cars in Dubai. I thought it was especially funny that they had some government tool claim that it was only seven cars but there was anecdotal data that the number was hundreds or thousands.
I suspect you’ll see some really cheap Beamers auctioned off in Dubai in the next few months…
greenlander | February 25th, 2009 at 5:43 pmGenius,
Egocentrism may be the way of a lot of people who CALL themselves Christian these days, but I’m pretty sure that’s not what Christ taught.
shoppingaround | February 25th, 2009 at 6:36 pmOn topic: There clearly seems to be something wrong with a plan that is supposed to be putting homeowners back on track, but has a more than 50% failure rate. I agree with GeneK (#32) that it’s not right to lump all troubled homeowners together with flippers and deadbeats. Most people are very naive when it comes to finacials. And everyone from the governmnet itself on down was repeating the mantra of “It’s a great time to buy!” for years and years. Why wouldn’t an innocent person believe them?
shoppingaround | February 25th, 2009 at 6:41 pmRats! I should have practiced more in typing class:
“government”
shoppingaround | February 25th, 2009 at 6:46 pmI say that you should protect your credit score at all costs. Next year the competition will be very limited. Those of us with 800+ FICO scores will get great terms. Those who decided to miss a few payments in hopes of getting better a better loan will have to rent from us. Those who bought a house they couldn’t afford will have to rent from us. Those who used their house to finance their lifestyle will have to rent from us. Nothing is more valuable than a good credit rating.
D Max | February 25th, 2009 at 7:02 pm“The American citizens voted in November for government help to stop this recession. Now, every time the government comes up with a plan, everyone screams in horror.”
No, something like 52% (?) voted for Obama, or against McCain. Some fraction of that may have actually understood the issue. So maybe, at best, 10-20% voted for change as you are describing it. The rest were lemmings who simply vote party lines (you should’ve heard the Howard Stern street interviews with people who clearly didn’t know the difference between left and right intentions… and vice presidents).
Aztec | February 25th, 2009 at 7:21 pmAztec,
Can you cite something online to back up your argument?
keithl | February 25th, 2009 at 7:31 pmSEH Looker,
I bought a house in N. County 4 years ago. I also have 3 years of emergency funds. Throw in unemployment benefits and I can last a long time =P
The company I worked for shut down. But, I landed softly. Some of my colleagues didn’t. I have no debt except this house which has lost 11% (thus far). Not sure why you want to buy in SEH, but I would stay clear for a number of reasons. I am living proof that you can buy in N. County and still be ok when business turns south as you put it.
3clicks from da Beach | February 25th, 2009 at 11:02 pmThe visceral is flowing at near a max now…is pitch forks and torches coming? I do hope so! I have to say, this continue bailout of boomers is finally starting to piss the populace.
SurferNate | February 25th, 2009 at 11:52 pmLead(“lead” substitute in CA for the enviros) and mana(manna) is all you need in the very near future…finally convinced my wife about that!
Every situation is different. In my neighborhood, people had been doing really well in business. When the economy went south, so did their business income. You couldn’t predict it. Nor was it irresponsible to buy a home that you could afford at the time – unknowing that the tides would change. Home prices were so largely inflated that you didn’t have much choice here in SD.
This is incorrect because many people DID predict this downturn…and had to deal with the masses calling them “bitter, jealous renters” and “doom-and-gloomers” and “tin-foil-hat cranks,” etc.
Additionally, **everyone** had a choice, but most people chose to make the wrong decision. It was obvious to anyone who actually dared to watch the trends that this housing/credit bubble was epic, and the aftermath was going to be brutal — taking down everything the bubble built up, and then some. Everyone had the option of renting at a fraction of the cost. It is not our problem that others thought renting was beneath them. Their problem, not ours. If they can’t afford the house, they should walk away.
If renters lost their jobs, wouldn’t they lose their homes, too? Do you think **YOU** would want to pay our rent for 30+ years if we lost our jobs? What about if all renters lost their jobs, but home “owners” were somehow immune…would you want to sacrifice on our behalf?
CA renter | February 26th, 2009 at 1:01 amGene K
Were people really lulled by slick sales people. The reality is they new they could not afford the home (That is why they intended to refi (and pull cash out) in two years. That means they believed there home could not go down in value.
Well a lot of people believed that so I cannot say too many bad things about that. However it is not as though they will be made homeless if they get foreclosed upon. In fact there are many reasons to believe they will be better off in a new rental including:
*mobility
*not needing to do repair work
*a payment they can afford.
As a taxpayer not only do I not want to subsidize a bad decision I also do not want to create an immobile class tied to a worthless asset.
lv renter | February 26th, 2009 at 9:32 amNot happy about it myself, but it was bound to happen one way or the other. The guy who won last Nov is trying to save the homeowners; if the other guy had won he would have done something more devious in order to try to save the bankers.
As I’ve said previously, I don’t have a huge problem with enabling underwater owners who would otherwise not be able to refi to refi their mortgages at current rates for full principal; the idea of writing down peoples’ principal, otoh, ticks me off no end. If someone is determined to pay off everything they owe, I’d let them have a shot at it; otherwise, take the house now and get it over with.
GeneK | February 26th, 2009 at 2:35 pm