Wave of Voluntary Strategic Defaults Coming: 20% Under water

Editorial Comment: Actually the number is far higher. We compute it as around 45% when all is said and done. First of all there is consensus that property values are actually around 15% less than seller’s are asking. Second costs of selling the home makes up the rest, taking another 6-10% off the selling proceeds.

The break point where people go for “jingle mail” sending the keys back even if they are current is when that value is less than 75% of the principal due on the mortgage. In that sense, the 1/5 figure is right.

What has NOT been computed is what will happen if the growing trend toward strategic defaults (jingle mail) becomes a stampede. I think it will do just that — and further the trend will probably spread to other loans, especially those have been securitized like credit cards, auto loans, and student loans where the loan originator never advanced a penny toward the loan and just collected a large fee.

Investors and borrowers need to get together and work out the details, throwing the loss onto the “banksters” (Pecora term from 1930’s). Disinformation is being spread and believed. The creditors and the debtors are being intentionally blocked from knowing their relationship to each other. When they DO know, the ship will turn back over and start floating again — at the cost of those who perpetrated the largest fraud in human history.

There IS a way to work this out but not if the goal is to save the banks that created this mess. We have at least 7,000 other banks, TARP and other bailout money available, and an IT infrastructure that can be used today to provide the full range of services and conveniences that the “too big to fail” banks use to beat down the competition from community banks and credit unions.

Associations of community banks not controlled by large regional banks can play a pivotal role in this. Where the associations are controlled by the big banks like Florida bankers Association, the community bankers need to re-start their own association.


One-Fifth of U.S. Homeowners Owe More Than Properties Are Worth

By Daniel Taub

Feb. 10 (Bloomberg) — More than a fifth of U.S. homeowners owed more than their properties were worth in the fourth quarter as the number of houses and condominiums lost to foreclosure climbed to a record, according to Zillow.com.

In the fourth quarter, 21.4 percent of owners of mortgaged homes were underwater, up from 21 percent in the previous three months and down from 23 percent in the second quarter, the Seattle-based real estate data provider said today in a report. More than one in 1,000 homes were repossessed by lenders in December, the highest rate in Zillow data dating back to 2000.

Underwater homes are more likely lost to foreclosure because their owners have a harder time refinancing or selling when they get behind on loan payments. U.S. home values dropped 5 percent in the fourth quarter from a year earlier, the 12th straight quarter of year-over-year declines, Zillow said.

“While the next few months are likely to bring further home value declines in most markets, we do expect to see a national bottom in home prices by the middle of this year,” Zillow Chief Economist Stan Humphries said in a statement. “Thereafter, home values are likely to bounce along the bottom with real appreciation remaining negligible for some time.”

There were 2.82 million foreclosures in the U.S. last year, according to RealtyTrac Inc., the most since the data provider began compiling figures in 2005. The number may rise to 3 million in 2010, the Irvine, California-based company said last month.

Bank sales of foreclosed properties accounted for a fifth of all U.S. home sales in December, Zillow said. Such transactions made up 68 percent of sales in Merced, California; 64 percent in the Las Vegas area; and 62 percent in Modesto, California, the company said.

Almost 29 percent of homes sold in the U.S. went for less than their sellers originally paid for them, Zillow said.

The closely held company uses data from public records going back to 1996. Its mortgage figures come from information filed with individual counties.

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.

Last Updated: February 10, 2010 00:01 EST

14 Responses

  1. A restriction in the form of a covenant, condition, or equitable servitude that has become obsolete is unenforceable. See, e.g., discussions in 4 B. Witkin, Summary of California Law Real Property §§ 502-07, at 681-84 (9th ed. 1987); 2 A. Bowman, Ogden’s Revised California Real Property Law §§ 23.29-23.34, at 1157-61 (1975); 7 H. Miller & M. Starr, Current Law of California Real Estate § 22:19, at 577-82 (2d ed. 1990).

    Dan Edstrom

  2. Last decision, I believe, for Boyko case was on October 31, 2007. It does not support what you were told.

    RESPA has a one year statute of limitations for damages, but there is a three-year statute of limitations for rescission.

    Producing the note is note enough, assignments must be complete and valid according to chain outlined in SEC documents for the Trust the Trustee claims to acting on behalf of. In addition, since foreclosures are not current pass-through of cash receivables, and therefore cannot be securitized, it must also be demonstrated that the mortgage loan is currently in the Trust and that no subsequent assignments occurred. ie – that it was the LAST assignment.

    Since actual securities do not change hands (physically) via default swaps, and only collection rights are “swapped” out of the Trust, you must also find out who possesses the “collection right”. The Trustee only has collection rights for current receivable pass-throughs.

    Also, some of you may want to look into who has been paying arrears (payments, taxes, insurance etc.) – because if the mortgage loan is still a part of the Trust – and has not been removed (for whatever reason – these Trusts are no longer operating as they were originally set up (thus “true sale” has been negated) – then the Trust had to have received all arrears – and who has been paying them?? If the Trust has not received all these arrears – the loan can no longer be a part of the trust.

    QWRs may be useless because the truth is rarely revealed.

  3. All toyota has to do is change its name to Bank of Toyota America and it can get away with it. Sad but true very sad but true


  4. So I talked to a forensic analysis firm today (not Foreclosure Defense Group from this blog) and the gentleman I talked to said several interesting things, some of which I’ve not been able to verify, namely:

    1. “Judge Boyko’s well-known dismissal of 14 foreclosures in 2007 was undone the very next day when Deutsche Bank showed up with the proper paperwork (of course it couldn’t have been done “the next day,” but did DB in fact return to court at some point with the proper paperwork and foreclose?)”

    2. “RESPA claims do not have a one-year statute of limitations.” I was told the exact opposite by a RESPA attorney in New Orleans–that RESPA claims DO have a one-year statute of limitations, which is one reason why he quickly lost interest in talking to me about my case (my refi is over two years old).

    3. “The bank, in 99% of cases, produces the note and forecloses.” This does not jibe with my reading, which of course has included lots of info about April Charney, who became suspicious of all the “lost note” affidavits that were being filed.

    4. “What you read on the Internet is a bunch of BS and will lead to you losing your house.” So far, what I’ve read on this blog (which is on the Internet, obviously) has helped me save my house.

    5. “QWRs are a BS tool that are all but useless.” He said this when I mentioned that I had gotten a lot of the documents I now have in response to QWR letters.

    Then I asked how much they charged and he said $1295. Since there is no price listed on the website, I don’t know if that’s a typical price or if he thought I was a sucker and would pay that no questions asked, or what…

    Just sharing…

  5. Thank you Dave Krieger and KyleNYC for your informative posts.

    Whoops, I though the Trustee to securitized trust – not Citigroup- owns right to mortgages!! At least that is what courts say. Is it not odd that most court cases site Deutsche Bank, Wells Fargo Bank NA, and US Bank NA, as the universal owners/lender/holder of all mortgages? So how can Citigroup offer “deed in lieu of “?? Because Citigroup has not assigned anything to anyone – and still holds the mortgage loans on its balance cheats (sheets).

    Also very informative video from KyleNYC. These kinds of “deals” are happening all over – with and without the government assistance. There is plenty of room to write down the principal on mortgages with profit (after write-off and discount sale) still to be made by whomever actually owns the loan.

    Never got it why a “short sale” was good for the economy – or “deed in lieu of”. The value of the property is reduced (affects economy) under either scenario – why turn over the keys to a new homeowner instead of just keeping the current homeowner (who was defrauded) in their home?

    There is just not enough anger out there from the people. A professor once told me that the sixties generation was the best – they fought for what they believed in – right or wrong. Have to stop thinking about the next restaurant we are going to eat in – and stand up to Washington.

    Watching a case where there is clear evidence that the foreclosing party has/had nothing to do with the loan. The government will only get it when the people demonstrate that their voice must be heard.

  6. so by ostensibly giving underwater homeowners an alternative to foreclosure, with the carrot being no hit to their credit- the “lenders” are, sort of like money laundering, laundering the note and mortgage/deed of trust. Pathetic, simply pathetic.

  7. My “lender” [GMAC] had offered me a deed in lieu of foreclosure right after they issued me a NOD. You’re right, that’s the quick and dirty way out for them. No, I didn’t take it.


  8. For those of you watching the news, Citigroup has just announced their plans to offer “deed in lieu of” alternatives to foreclosure … how convenient is that? The excuse the bank execs are giving is it results in less of a “hit” to the homeowner’s credit score and the bank gives the homeowner a $1,000 in relocation costs after they let them stay in the home mortgage free for six months (the homeowner still has to pay utilities) … how convenient is that? A 1,000 homeowners in Texas, Florida, Illinois, Michigan, New Jersey and Ohio are expected to participate. What a wonderful way to NOT have to prove you actually don’t own the note! Guaranteed default on the part of the homeowner! It’s the lazy man’s way out. Citigroup doesn’t want homeowners realizing that the bank that’s offering them their $1,000 “out” seriously doesn’t even own their note and mortgage. It’s just like Monopoly … land on Park Place or Boardwalk and there’s a hotel on either one … pretty soon you get wiped out and leave the game. In my opinion, the whole “deed in lieu of” option is further continuance of the frauds perpetrated by the banks against homeowners.

  9. Hope I’m not breaking protocol here but you guys should take a look at this:


  10. Stan, I thought the judge could stop the sale if the price was less than half the market value? Go to Wisconsin Statutes under foreclosure 846.165(2) In case the mortgaged premises sell for less than the amount due and to become due on the mortgage debt and costs of sale, there shall be no presumption that such premises sold for their fair value and no sale shall be confirmed and judgment for deficiency rendered, until the court is satisfied that the fair value of the premises sold has been credited on the mortgage debt, interest and costs.

  11. Good Job Mr Taub;
    What does Orlando or Kissimmee Florida look like?
    When a bank fights me for 3 years to foreclose. (I gave up and they take a residence, the FDIC takes them over 3 weeks later and they sell the house for $15,000.00 but the bank forecloses against me for $130,000.00 and a $10K lein; the house didn’t bring enough at the auction, something is wrong.
    Stanley Putra
    Racine, Wi.

  12. A house is only worth what someone is willing to pay for it.

    “Property Value” is now a purley speculative term.

  13. I suggest we all start praying to whatever God or Gods we believe in.


  14. Faber: Debt Interest Will Lead to Default, Then War


    Dan Edstrom

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