From today's L.A. Times: What it's like to lose your house

L.A. Times runs a regular "Postcards from the Recession" column.  Today, the column has a terrific, first-person article about what it's like to lose your home to foreclosure/short sale.  The title should link; if not, click here.  The writer, Kathy Gosnell Seiler, is a copy editor at the LAT.

Why loan modifications aren't happening

Today's Michael Hiltzik column in the L.A. Times contains a great article on loan modifications and why so few of them are actually happening. The title should link; if not click here. IMO, here's the most pertinent text from the article:

The key to keeping a financially strapped borrower in a home is to modify the mortgage to cut the monthly payment, whether by cutting the interest rate or loan balance or by stretching out the repayment term. What makes this difficult is that often the loan servicer — the bank or office that bills the homeowner and tracks his or her payment history — doesn't own the loan, which has been packaged and sold to investors. The servicer's right to sign off on a mortgage modification may be murky, even if in the long run it will benefit the investor by keeping the home out of foreclosure.

In fact, servicers have powerful incentives to do the wrong thing — wrong for borrowers, wrong for investors, wrong for the economy. They make more money, and have better guarantees of payment, if they delay modifications, even if they force homeowners into foreclosure.

That's because they can continue to collect junk fees from homeowners while they stretch out the process. Although they have to advance interest payments (and sometimes principal) to investors even on delinquent or defaulting loans, they're first in line to be repaid from the proceeds of the sale of a foreclosed home. Under those circumstances, why would a servicer break a sweat to keep a home out of foreclosure?

Emphasis mine.  I've been wondering why more loan modifications, which make a lot of sense, aren't going through.  Thanks for nothing, servicers.

Tried to get a loan mod lately? Was it difficult? You weren't alone; read this

I know business news is boring, but this article from today's L.A. Times is a must read.  The headline says it all: "3 banks lose loan mod incentives" from the federal government.  Those three are BofA, JPMorgan Chase and Wells Fargo.  The government says these banks need to improve their loan modification practices to qualify for the money.  I'll say. Several other loan servicers were judged to be poor performers too: Ocwen, American Home Mortgage Servicing, Citigroup, GMAC, Litton, OneWest Bank and Select Portfolio.

Some short sale experts I've spoken with believe that the small amount of money that the government is offering these banks is a joke, and this article quotes others who say the same.  And the U.S. House of Representatives recently voted to end the program. To me, whether or not the banks get money for modifying loans, it's bizarre that banks would force their own customers into foreclosure instead of knocking points of their interest rates.  How does that scenario make sense?

Blood sucking vampire realtor and short sales

Does foreclosure lead to terrorism?

...Because if it does, we all better take cover.  Okay, not funny.  But you have to wonder about housing circumstances of the guy that tried to blow up Times Square.  By all accounts, he lived a nice life: house in the suburbs, wife and kids, job, education, etc.  And then it went wrong, or he went wrong, or something.  Couldn't pay the 1st mortgage, couldn't pay the 2nd HELOC, and got foreclosed from there.  Did losing that part of the "American Dream" unhinge him and tip him into radicalism?  Would he have tried to blow up Times Square if he and his family (now no longer in the country) were still settled homeowners and if the bank had done a loan modification?  I'm not being flip, I'm just wondering.

An NYT explanation of why loan modifications aren't working

I always find Gretchen Morgenson, New York Times business columnist, to be very user friendly and readable. Here's her article from yesterday's New York Times about why loan modifications aren't working out so well. An interesting quote:

"The terms of loan modifications also make them especially failure-prone because the government calculates “affordability” (how much mortgage debt a borrower can actually manage) in a highly unusual way — raising serious questions for the housing market over all and for the program’s effectiveness for borrowers. For example, in devising what it considers an affordable mortgage payment, the program doesn’t account for all of a borrower’s debts — the first mortgage, second lien, credit card debt and automobile payments. Instead, it calculates affordability using only the borrower’s first mortgage payment, insurance and property taxes."

The article also goes on to address the issue of high-interest second mortgages held by major banks.

Easier loan modifications and short sales. Are you listening, banks?

Regardless of what the banks would like you to believe, loan modifications and short sales should be getting easier to accomplish, thanks to the U.S. government. Here's a link to an article from today's L.A. Times.

Why loan modifications aren't happening

Today's New York Times business section has an interesting column regarding why more loans aren't being modified. Check the story by Gretchen Morgenson here. In short, there are two reasons: fear of lawsuits from investors, and fear that servicers of loans will make out like bandits, while leaving the owners of the loans high and dry.

So much for loan modifications

I received this email this morning from former clients. Their loan is through GMAC Mortgage.

"We have been attempting to do the loan modification program however we cant seem to get anywhere - We have fed ex'd the paperwork - faxed the paperwork and have made appx 14 phone calls in cluding to supervisors - they say we have not recived your paper work or it has not been updated in your file. we have provided them with proof of delivery and they say they can not do anything. they say it takes 5 days to update the files its been a 3 weeks since it went 3/23 it was signed for and faxed twice - two weeks ago and last week - again today. The Mortgage modification program otherwise called loss mitigation is run out of texas and you can not get the same person twice - it takes about an hour to two hours to get thru on the phone and they go thru the spiel again and ends with sorry we dont have your paperwork cant help you. its getting really ugly now and we have no recourse... From wht they tell us its all out of texas. We have tried everything possible and made them put our pphone call in the file and the fed ex number. We are so frustrated at this point Hope yu are having a better time of it. "

Wow, talk about a run around! And coincidentally, here's info on how to get around the loan mod run around from LAT's LaLand. Do banks want to have a lot of foreclosed homes to sell? IMO, if these banks are taking taxpayer money to stay afloat, they have a responsibility to help those same taxpapers.

Sunday reading -- from the L.A. Times and The New Yorker

The business section of today's L.A. Times contains two excellent consumer-oriented articles about foreclosure and loan modification. The first, Headed for Foreclosure? Here's What to Expect has definitions and a foreclosure timetable. The second, Common Loan Modifications Offered by Banks, delves into the types of loan modifications offered (warning: principal write-down is rare).

This week's The New Yorker offers one of the best articles on the mortgage meltdown crisis that I have read. It focuses on Florida, and is titled The Ponzi State, but the situations described are applicable to California and elsewhere. George Packer is the author. Unfortunately, you have to be a subscriber to read the article, but here's an abstract. The article is unique in that it profiles several different individuals that have been hurt by this downturn that haven't been much written about before, including folks that have never owned a home and state officials.

Countrywide rides to the rescue. Or not.

In case you didn't see the paper today, Countrywide plans to cut the interest rate on some of its option arm loans to 2.5%, and possibly even reduce the principal on others in order to help people stay in their homes. I think these efforts should help some people from losing their homes to foreclosure, and that's a good thing.

And, as we all know, the holders of California mortgages now have to actually try to contact homeowners before they're foreclosed and try to do workouts, which is also a good thing and has led to a drop-off in foreclosures.

However, our office's short sale expert tells me that banks are largely paying lip service to these loan modifications. For example, I'm told that many loan servicers will now take calls from distressed homeowners and promise a workout, but then not ever follow up. And the banks are not staffing up to meet these new challenges, even though they've had ample time to recognize the problems in the housing market and prepare for workouts. So, is this all just a game? Will banks have title to most of the residential real estate out there by the end of the decade? Stay tuned.