As 23 states already hang in limbo with state-wide foreclosure moratoria in place on the parts of at least two of the country’s top three banks and legislators strive to implement more sweeping moratoria throughout the country, lenders and investors are wondering where to turn next. Just last week, a piece of legislation designed to expedite the eviction process on people who had not paid their mortgage payments was vetoed by the President on the grounds that the foreclosures and evictions might be invalid, and the short sale industry is grinding to a standstill as title companies refuse – or consider refusing, depending on your source – to insure titles on homes with GMAC/Ally loans. In fact, nearly 40 of the 50 states in the union are now calling for a comprehensive freeze on foreclosures until the scope of the problem is clarified[1].
While some might argue that the lenders in question deserve to suffer since they are the ones that haphazardly signed invalid foreclosures and may have evicted innocent homeowners, the facts remain that the vast majority of defaulted loans are, in fact, in default because they were not paid. The foreclosure moratoria could make things worse not only for homeowners who are trying to resolve their problems, but also for lenders, who stand to lose millions if not billions of dollars while properties stand inhabited by in default. Furthermore, even loan modifications may be off the table for now, since the entire default and foreclosure processes are now in question, and these play a major role in the decision of a lender and a homeowner to attempt a modification.
While critics do point out that loan mods are not particularly profitable for lenders anyway, they do enable lenders and homeowners to start collecting and paying, respectively, their mortgages once more. Now that there is a foreclosure moratorium in place in most parts of the country, it is possible that all incentive for loan mods on both sides could disappear, eliminating one more avenue for homeowners and banks to resolve their fiscal issues without necessitating, ultimately, a foreclosure.
[1]http://personalfinancebulletin.com/foreclosure-freeze-may-impact-mortgage-loan-modifications/2987/
Bryan,
I’m not sure you are aware of the extent of the foreclosure fraud debacle. It’s not just about some robosigned documents. It’s also about whether the foreclosing entity has the right to foreclose in the first place. Only the true creditor has the right to foreclose and in many cases that creditor is not identified because of slicing and dicing of these pooled mortgages. This is so much deeper than what is being published in the media. Homeowners deserve an honest shake with the courts and not railroaded based upon fraud. The solution lies in identification of the true creditors and determining if they have a claim. I’ll bet many do not because of 3rd party payments. This isn’t about homeowners getting a pass and banks taking it on the chin. It’s about the fabric of our society being undermined by illegal practices than need to be rooted out and justice provided in our courts.
Let’s pray for justice.
Loan modifications are a very bad idea because if you are granted a loan modification you will be required to sign a release of lender liabilty for any violations of law they may have committed and/or wrong doing the lender has done to you the borrower.
You better do some serious research and dirve a very, very hard bargain before signing onto a loan modification or you might end up losing again.
And NO, you do not need a $5,000 Attorney to help you with a loan modification. What you need to do is a little research and ask you government a lot of questions.
The problem with a loan mod is the same one they are currently having with foreclosures, you need to have all of the paperwork in order before you can sign a modification. Not sure why people would think one is separate from the other.
Most likely will further crush the housing market. The next shoe to drop is going to be the value of the dollar. Not sure how that is going to effect the mortagage issues but it does not look like it will be a positive one.
As usual Bryan thanks for keeping up and giving news and analysis to investors! I have to say as an attorney that the problem with what lenders have been doing by filing false affidavits is a complete disrespect for the judicial system and the termerity to lie in court. Tens of thousands of times per month!
That is an affront to the rule of law and gets courts very angry. I do understand the feeling that the homeowners defaulted on their payments – true! But what you must understand is that we have a judicial system with rules and much of the way that fairness is assured is by following the rules as they stand. In this case the rules are not difficult – just review the lender’s records and verify that the lender owns the loan and that the monetary claims are correct. If they are not, then revise the affidavit so they are correct. Then sign your name and swear to the fact that you have reviewed the records and the claims made are, to the best of your knowledge, after review, truthful.
Keep in mind that we are talking about a large mortgage company with endless resources relative to a homeowner or investor with a single property. We must force these large elephants to observe basic procedural rules so they do not squash the little guy who does not have the resources to fight back! In addition if the amround due is wrong it can cause a large tax bill to a property owner if hat amount is written off. The numbes simply need to be accurate and it is not a difficult thing to do. It is just that the lenders do not respect anyone enough to do it right. It is abusive and irresponsible of them and I hope the courts whip them into shape.
You may also not be aware that in some cases what they did may be criminal in nature. Filing false affidavits is perjury. Where would we be if people and companies could lie in court with impugnity? If they set up their very systems to do that?
As we have seen in loan modifications and short sales lenders can be stubborn and when they are there is little leverage for the borrower. Unless you are very persistent. Most do not have the finances to litigate their claims (remember they are in foreclosure) so they have little leverage over the lenders.
What is really bizarre is that lenders lose less money in almost all cases by doing loss mitigation – loan mods of short sales – because the borrower in the house will continue to pay, the lender collects principal and interest over time. Yet so many lenders refuse to offer a good deal up front or they offer no deal and instead foreclose and lose tens of thousands of dollars. Unless something is done to hold lenders accountable the government (read Taxpayer) will have to give these big elephant institutions more of our money so they can inefficiently manage the foreclosure and loss mitigation processes.
There are logical reasons for the refusal to bargain, mostly because servicing agreements actually favor foreclosure over loss mitigation because the servicer makes more fees that way. The people who get screwed are the property owner and the investor who owns the mortage. Due to complex servicing agreements and trustee relationships that is the way it is..for now. Can you imagine a system where the property owner loses his asset, the investor who owns the mortgage loses tens of thousands of dollars – all so the servicer can earn a few thousand extra due to foreclosure fees? That is just wrong!
I am hopeful that this debate will turn to forcing the servicers to do what is right for the investor who owns the mortgatge and for the tax-payer and what is most merciful to the poeple losing assets – that is offer a loan modification that is affordable for the property owner and leads to the least loss for the investor who owns the mortgage.
The easiest way to fix this is by changing the bankruptcy code to allow bankruptcy court judges to modify residential mortgages. This would scare lenders into taking loss mitigation more seriously because there is a third party who can force them to do what they currently are loathe to do. Right now unless you know what you are doing and how to approach your lender loan modificaiton and short sales are much more difficult than they need be.
My prediction is that this uncovering of the dishonesty on part of lenders will put pressure on them to do more loss mitigation – loan modification in particular to stem the foreclosures which will back up oni the system while foreclosures are on hold and now that courts know the brazen-ness of lenders who will come to court and lie.
One last thing..the thought that this will destroy the real estate market is nonsense. The market has more sellers than buyers and if the foreclosures are off the market it will re-balance supply and demand. If I am correnct that lenders will do more loss mitiatgion – especially loan modification that will keep the supply down permanently which would help. The argument that this will destroy the real estate market has to have been started by PR forms working for lenders.