The Year in Foreclosures

The big jump indicates that many foreclosures that were in process in 2009 are now beginning to move to repossession and, eventually, auction. With more than four million homes in that pipeline, the foreclosure crisis shows no sign of abating.

“There is an emerging consensus among financial experts and policy makers that the key to successful modifications is to reduce the amount of the borrower’s loan balance, rather than merely reducing the monthly payment. The goal is to lower the payment while restoring equity, thus giving borrowers both the means and the incentive to keep up with their payments.”

February 15, 2010
Editorial New York Times

The Year in Foreclosures

Last week offered some sobering news on the housing market: Even with broad government support for housing, data from the National Association of Realtors showed that the median price of single-family homes continued to decline in 2009. RealtyTrac, an online marketer of foreclosed properties, said foreclosure filings rose by 15 percent in January compared with a year ago.

Foreclosure is generally a long process, with multiple filings as delinquent borrowers fall ever further behind. What is most ominous about the latest RealtyTrac numbers is that nearly 88,000 people had their homes repossessed in January, a 31 percent increase from a year ago. The big jump indicates that many foreclosures that were in process in 2009 are now beginning to move to repossession and, eventually, auction. With more than four million homes in that pipeline, the foreclosure crisis shows no sign of abating.

Worse, as The Times’s Peter Goodman recently reported, the Obama administration’s antiforeclosure plan (which pays cash incentives to mortgage companies that lower monthly payments for troubled borrowers) may be doing more harm than good for some borrowers.

Before a lender will permanently modify a loan under the plan, eligible borrowers must go through a trial period — several months in which they keep current on reduced monthly payments. For some borrowers, even a reduced payment is too onerous, leading to redefault. Others reported being denied a permanent modification even after keeping up the trial payments. In both cases, the borrowers do not avoid foreclosure, and are out the money they have paid during the trial period. That is money they could have spent moving to a rental home or for other purposes.

There is an emerging consensus among financial experts and policy makers that the key to successful modifications is to reduce the amount of the borrower’s loan balance, rather than merely reducing the monthly payment. The goal is to lower the payment while restoring equity, thus giving borrowers both the means and the incentive to keep up with their payments.

Administration officials have resisted that approach, in part because they believe it would be too expensive. Another obstacle is the lenders themselves. In general, a lender is unwilling to take losses by reducing principal unless the owners of the second mortgage on a home also take a hit. For banks that own the second mortgages, such losses would be huge — something they clearly would prefer not to face up to.

Banks’ unwillingness to take losses on second mortgages may also be holding up so-called short sales, in which a lender agrees to retire a first-mortgage debt by taking the proceeds from the sale of the home, even when the amount is less than the mortgage balance.

Last April, the Treasury detailed a plan to get second-mortgage owners to write down their debt once the first mortgage is modified. But until recently, when Bank of America signed on, no banks had cooperated.

Unless the banks can be compelled to get on board — allowing principal reductions to become the norm — the antiforeclosure effort may have more success in letting banks postpone their losses than in helping Americans keep their homes.

7 Responses

  1. Stan Baby!! Congrqtulations!

  2. Brian,
    Nice job! Very thorough and it looks like you avoided some of the pitfalls that I allowed myself to get into in my complaint.

    Give ’em hell!

  3. Compilation of everyones comments in an amended complaint in California.
    We all need to support against these crooks.

    http://www.scribd.com/doc/26821737/DAVIES-V-NDEX-WEST-UNIVERSAL-AMERICAN-MORTGAGE-DEUTSCHE-BANK-NATIONAL-TRUST-MERS-2924-2923-5-BP-C-17200-Second-Amended-Complaint-1-59-With-Exh

  4. Hi Dave,
    What do you mean on the UCC filing; what would a homeowner look for? Would it be on their individual DOT/Note or on the actual SPV?

  5. Principal reductions are just too complicated for this system to handle. The only viable and easy solution is a moratorium on interest payments on
    all the mortgages involving appraisal and income fraud, which is almost all of them since 2000, the
    so called “liar loans”.
    This way both the investors and the homeowners
    come out with something. The market will discount
    a zero interest note down to its true market value, the
    true market value of the property. Gradually, these
    Notes will get paid off as people sell the properties
    and move around. Most people move every five years
    anyway, so the crisis will just work itself out over time.
    Doing this will require an emergency executive
    order from Mr. O’Bama and it is highly overdue!

  6. I have Wellsb Fargo file a motion to dismiss their $30K second on my house. It has been 2 years sice they got the judgement. CitiMortgage holds the first.
    WF just put in a motion to dismiss the judgement of foreclosure. The judge ok’d it and cited that WF did not actively persue the judgement and there was no equity.
    Judge dissmissed WITH prejudice!
    I have been in contact with Executives in the Offices of the President of WF. I suggest that anyone that seriously wants to keep their property and have just gotten the run around with Loss Mit or the foreclosure dept. to use this approach and try to educate the exec. that the investors pool may have gotten reimbursed with insurance.

    Stanley Putra
    Racine, WI.
    stan@banderabeachestates.com

  7. From what I have read on this blog site, most of the foreclosing lenders don’t really have the legal capacity to
    foreclose. It’s just that a majority of American homeowners are ignorant of the truth … and so are a lot of the judges who just rubber stamp whatever the banks want and allow the slam dunk. The banks have all made money on the interest that has been paid on these mortgages and the investors who bought the securitized derivatives got nothing. What’s worse, the homeowners got screwed in the process because they had no knowledge of any of this until the media broadcast the government bailout of the banks … then and only then did things get dicey. I have a new term for strategic defaults … use them to gain information about the lender prior to foreclosure. Through a demand letter campaign, find out WHAT the lender has in the way of paperwork. Look up your UCC filings with the Secretary of State to make sure they’re all there and that they are properly recorded. If the new lender hasn’t recorded any new UCC’s to update their securitization process, you may have the loophole necessary to be ripe for a quiet title action. This is what friends of mine are starting to do … hell, I’m suing Chase Bank for reporting false information on my credit report [they took over a WAMU loan I had previously paid off and are now reporting that loan as their own, yet they have no recorded security filed with the Secretary of State!] … food for thought. Take the offensive posture rather than the defensive one. Either way, discovery may win your case.

Leave a Reply

%d bloggers like this: