Posted by: "HENCHMAN OF JUSTICE" | February 3, 2010

Home Mortgage Crisis – 10% underwater and mailing in “keys”

5.1 million homeowners are projected to have had to “walk away”. 

5.1 million times $10 = $51 million debt
5.1 million times $100 = $510 million debt
5.1 million times $1000 = $5.1 billion debt
5.1 million times $10,000 = $51 billion debt
5.1 million times $100,000 = $510 billion debt 

       Now, when basing lost home valuations against the debt, the resulting data would put the median amount owed on mortgages somewhere around the $100k – 200k  mark each, imo. Then, include the mortgage reality (the already paid with cash): all services, charges and fees the banks got “up-front”; one-time 3rd party service charges based on percentages of each and every one of the transactions turned into debt; over-payments on insurance premiums; over-payments on property taxes; the construction permit fees being too high based on valuations; and, so much more – and this is extra “hidden” money not calculated into the Congressional Budget Office (CBO) figures at the Federal level all the way down to the local level. 

       When it comes to local jobs – be concerned that without jobs that manufacture or create something, many people won’t buy homes (unless they’ve already made their riches, sts) without the guarantee that retail consumers will continue to buy, buy, buy (for which there is no guarantee). The economic cycles of boom and bust have obviously taken tolls on the very foundation of American lifestyles – YOUR HOME. As the campaign season gets closer to the  June 8th election date, more posts shall reflect Jeffrey Lytle’s thoughts specifically with regard to Humboldt County housing and the many GOOD folks who construct those homes and provide services for others to engage in business. 

Below are 3 very well written articles about home mortgages and where this country is now, in so far as the housing sector is concerned. 

note: what is owed does not include what has already been paid for, including “real-estate transaction down payments”! 


No Help in Sight, More Homeowners Walk Away


by David Streitfeld
Monday, February 1, 2010

provided by
The New York Times 

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040. 

“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

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After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modificationplan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing. 

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying. 

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery. 

“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.

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The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance. 

They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages. 

“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.” 

Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment. 

“Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.” 

Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. “The sun will come up tomorrow,” he said. 

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call “house arrest.” 

Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation. 

Some experts argue that walking away from mortgages is more discussed than done. People hate moving; their children attend the neighborhood school; they do not want to think of themselves as skipping out on a debt. Doubters cite a Federal Reserve study using historical data from Massachusetts that concludes there were relatively few walk-aways during the 1991 bust. 

The United States Treasury falls into the skeptical camp. 

“The overwhelming bulk of people who have negative equity stay in their homes and keep paying,” said Michael S. Barr, assistant Treasury secretary for financial institutions. 

It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American. 

Using government money to do that would be seen as unfair by many taxpayers, Mr. Barr said. On the other hand, doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy. 

“It’s not an easy area,” he said. 

Walking away — also called “jingle mail,” because of the notion that homeowners just mail their keys to the bank, setting off foreclosure proceedings — began in the Southwest during the 1980s oil collapse, though it has never been clear how widespread it was. 

In the current bust, lenders first noticed something strange after real estate prices had fallen about 10 percent. 

An executive with Wachovia, one of the country’s biggest and most aggressive lenders, said during a conference call in January 2008 that the bank was bewildered by customers who had “the capacity to pay, but have basically just decided not to.” (Wachovia failed nine months later and was bought by Wells Fargo.) 

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Mortgage lenders pursue homeowners even after foreclosure


By Les Christie, staff writer , On Wednesday February 3, 2010, 8:18 am EST

As terrible as it is to lose your house to foreclosure, at least it’s a relief to put your biggest financial headache behind you, right? 


Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes. 

It can even happen to people who got their bank to approve them selling their home for less than it is worth. 

Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it. 

“My understanding was that the deficiency was negotiated away,” she said. “Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it.” 

Many homeowners are now in the same boat. And not just those who took out bigger loans than they could afford or who did so called “liar loans” where they didn’t have to verify their income. 

Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances — like unemployment or a job transfer — can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments. 

“After the banks foreclose, it’s very common now to have large deficiencies with houses not worth the balances owed,” said Don Lampe, a North Carolina real estate attorney. 

Lenders mostly declined comment. Although Corey’s lender, BB&T did indicate it was pursuing more deficiency judgments. 

“They follow the rise and fall of foreclosures,” said the spokeswoman, who would not discuss Corey’s account. 

Can they come after you? 

Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them. 

“Once they have a judgment, they can pursue you anywhere,” said Richard Zaretsky, a board-certified real estate attorney in West Palm Beach, Fla. “They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail.” 

In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms. 

Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it may be subject to claims. 

Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank. 

But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation. 

“People shouldn’t have a false sense of security that a deficiency judgment may not be later sought,” Zaretsky said. 

He expects many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount. 

“The parties who bought those notes wouldn’t have paid money for them unless they had the intention of acting,” Zaretsky said. 

Ticking time bomb 

What can be scary is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest. 

It doesn’t have to be a large amount of debt for a lender or collection agency to come after borrowers. Richard Varno and his wife short sold their Nashville home back in 2004 after he lost his job. 

It wasn’t until 2008, when the second lien holder asked him for $25,000, that he realized he still was liable. 

“I told them, ‘Hey, you guys released the title,'” he said. “As far as I know, I’m off the hook.” 

He wasn’t. Releasing title does not necessarily end the debt. It’s complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the loan. 

Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale. 

Zaretsky had one client who was so relieved to have arranged a short sale that he signed every paper his real estate agent shoved at him, even a confession that clearly stated he still owed the debt. 

“He had no idea what he was doing,” said Zaretsky. “All the lender had to do was go to court to convert the confession into a deficiency judgment.” 

Lenders are also very inconsistent. One of Zaretsky’s short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender always reserves the right to pursue the deficiency. 

Strategic defaults 

Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky. 

“Banks are pulling credit reports to see if it’s a strategic default,” he said. “If you’re behind on all your other payments, you’re okay. But if you’re not, they’ll come after you.” 

If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu. 

“We don’t favor any short-sale contracts that leave any deficiency that can be pursued,” he said. 

Robinson himself knows what can happen. He paid off a deficiency after his own New Jersey house went through foreclosure 11 years ago. 

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Loan repurchases are a $10 billion problem for big banks

Bank of America, J.P. Morgan and Wells Fargo vie with insurers, Fannie, Freddie 

By Alistair Barr, MarketWatch 

SAN FRANCISCO (MarketWatch) — Just when they thought the worst of the mortgage crisis was behind them, billions of dollars in bad loans from the debacle may be rising from the dead and creeping back on the balance sheets of the largest U.S. banks. 

Big lenders including Bank of America (BAC 15.61, +0.01, +0.07%) , J.P. Morgan Chase (JPM 40.38, -0.17, -0.41%) and Wells Fargo (WFC 28.13, -0.66, -2.29%) may be forced to repurchase troubled home loans from insurers and mortgage-finance giants like Freddie Mac (FRE 1.20, -0.01, -0.83%) that had agreed to take on risks associated with those assets during the real estate boom. 

The banks are setting aside more reserves to cover the potential costs of such repurchases, cutting into earnings. The Hedge Fund Manager and His Frog Hedge fund manager Robert Appleby has a longtime passion for amphibians. His philanthropic funding for the study of frogs has resulted in the discovery of a new species named after him, Lam Thuy Vo reports. 

 The trend is also pitting big lenders, insurers and mortgage-finance institutions against each other. That’s a big change from the previous decade, when they worked together to fuel the housing boom by originating, insuring and securitizing mortgages in record amounts.   

Christopher Whalen, managing director of research firm Institutional Risk Analytics, offered up a colorful metaphor for the unfolding situation. 

“The wave of loan repurchase demands on securitization sponsors is the next area of fun in the zombie dance party, namely the part where different zombies start to eat each other,” Whalen wrote in a note to clients Tuesday.  

Mortgage insurers such as MGIC Investment /quotes/comstock/13*!mtg/quotes/nls/mtg (MTG 6.51, -0.30, -4.41%) have rescinded, or refused to pay, roughly $6 billion in claims from delinquent home loans since January 2008, rating agency Moody’s Investors Service estimated in a December report. That could leave banks that originated the loans on the hook for losses.  

Bond insurers are expecting to recover more than $4 billion from banks for breaches of representations and warranties on residential mortgage-backed securities they guaranteed, Moody’s also noted.  

 ‘All parties in the mortgage chain are taking a look at their rights and looking to bring claims.’ 

 Michael Cavanagh, J.P. Morgan Chase  

“Depending on how things go it certainly could go much higher than $10 billion,” said James Eck, a senior analyst in Moody’s Specialty Insurance team. 


Meanwhile, government-controlled mortgage-finance giants Fannie Mae  (FNM 1.02, 0.00, 0.00%) and Freddie Mac are also getting in on the act, potentially forcing banks to repurchase billions of dollars more in bad loans.  

In the first nine months of 2009, firms that collect payments on mortgages guaranteed by Freddie Mac repurchased home loans with a total unpaid balance of $2.7 billion. That was up from $1.2 billion in the same period of 2008, Moody’s noted.  

Vulnerable to potential exposures

Bank of America and Wells Fargo may be particularly exposed on this front, according to Institutional Risk’s Whalen.  

Fannie and Freddie “are going to tear 50-100 basis points easy out of the flesh of the banking industry in the form of loan returns,” he wrote.  

Wells Fargo said last month that $1.2 billion in fourth-quarter income from mortgage loan originations and sales included a $316 million increase in reserves to cover loan repurchases. The bank disclosed no such reserves in its third-quarter earnings release.  

It’s a similar situation at Bank of America. Joe Price, the company’s head of consumer banking, told analysts last month that the company has billions of dollars in reserves lined up to cover loan repurchases and related disputes with Fannie, Freddie and insurers.  

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 Last edited on February 3, 2010 at 11:26 am 

Jeffrey Lytle – Humboldt County 5th District Supervisor candidate  



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