Just Say No — Strategic Defaults Spreading Virus — Christian Science Monitor


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EDITOR’S COMMENT: Based upon the calls and emails I receive it would appear that strategic defaults are increasing at an increasing rate of growth, which is why it is being referred to as a virus. In 2010 the Mortgage Bankers Association calculated the increase to be 22% over the year before with 30% of all “defaults” being strategic — 1/3 of the people just ditching the mortgage and walking away.

In 2011, some reports indicate that the rate of growth increased from 22% to 35% bringing the total to 40% of all “defaults” being of the strategic  variety. I’m guessing that 2012 will increase by at least 45% raising the total to far more than half of all “defaults”.

Let’s remember that the so-called default may not be a default at all. If the servicer was paying the payments, even though the borrower was not paying the payments due under the defective note, then the mortgage loan, if it is exists and is enforceable, is not in default; but the borrower probably has some sort of liability to the servicer even though it isn’t in writing anywhere in a contract between the borrower and the servicer.

The calculation is really simple and there is nothing the Banks can do about it. If someone has a home that is financed at $400,000, the property is worth $200,000 and there is no likelihood of any meaningful increase in value, then they are going to walk. Who can afford to pay $200,000 for nothing? Hardly anyone. The obvious conclusion is that this is going to create more and more pressure on the housing market — which will add more and more homeowners to the ranks of those “underwater.”

The failure of government to deal with the essential realities is prolonging the pain and increasing the likelihood of more pain in the economy — although there is an offset for those who stay in the home and recoup some of their investment through nonpayment of mortgage or rent. As stated by nearly every expert who is truly independent, the ONLY remedy here is to scale back the principal to something that will make it less likely for someone to simply stop paying it. That figure is no doubt higher than the current fair market value, and it might well stabilize the market and allow for appreciation to occur.

Instead, the banks and servicers have their own agenda which is at variance from their duties to manage the loans for the benefit of the investors who funded them. As a result, the properties are driven, coaxed and even coerced into foreclosure leaving the investors with nothing.

The current death spiral is making some parties very wealthy, but for most of us, the impact of each new foreclosure “sale” is like a meteor shower hitting home — literally.

Why people are ditching their mortgages

 More and more, indebted homeowners are deciding to walk away from their mortgages, instead of facing forced foreclosure. Who will pay the discarded debt?

By Douglas French,

More and more underwater borrowers are deciding it’s time to walk from their mortgage. “Guilt and morality are one side, and objective financial analysis are on the other side,” 68-year old David Martin told msnbc. “They’re coming to two opposite conclusions. I wonder how many other people are struggling with the same question.”

Mises Economics Blog This is the institutional blog of the Ludwig von Mises Institute and many of its affiliated writers and scholars commenting on economic affairs of the day.

Three out of 10 foreclosures in 2010 were of the strategic variety, an increase from 22% in 2009. The Mortgage Bankers Association believes strategic defaults are spreading like a virus. In a study entitled “Strategic Default in the Context of a Social Network: An Epidemiological Approach,” conducted by Michael J. Seiler of Old Dominion University, Andrew J. Collins of the Virginia Modeling, Analysis and Simulation Center and Nina H. Fefferman of Rutgers University and sponsored by MBA’s Research Institute for Housing America (RIHA) the authors found “One default does little to negatively impact the price of surrounding homes. However, as more and more mortgages in the neighborhood go into default, the negative impact is felt at an increasing rate. Much the same way as a disease spreads throughout a population, so, too, do decisions to ‘strategically’ default.”

Despite some experts projecting that the worst is over for housing, the immense shadow inventory of homes is casting a …well…shadow over the housing market. These estimates of the number of homes in foreclosure or likely to be in foreclosure are all over the map from Corelogic’s 1.6 million to 10.3 million estimated by Laurie Goodman of Amherst Securities.

Michael Olenick pegs the number at 9.8 million with the exposure being $1 trillion. He writes,

It is unclear where the money from these write-offs will come from, or whether they losses have been adequately budgeted. Obvious sources are Fannie Mae, Freddie Mac, European and US banks, none of which have reported anywhere near this level of reserves. We know that the Federal Reserve has been buying up MBS and related instruments in bulk; maybe the central bank plans to print more money to cover the losses and enable the foreclosures. Printing this much money, for this purpose, in this political environment, in secret, seems unlikely.

The Fed can keep printing, but it won’t keep homeowners from walking away.

34 Responses

  1. “WAKE UP PEOPLE, the devil is seriously at the door….it you look through the peep hole, you can see his horns. In yet more proof that the banksters own both the ReThUGlicans and Democrats it is rumored that in 48 hours, the deal with the devil will be inked in blood….” ~Matt Weidner


  2. E. Tolle

    Statutory, not actual damages, actual damages — unable to negotiate directly with your creditor, and resulting foreclosure.

    Ian, assume at some point sold. Insurers not in that business. But, very interesting.

  3. E. Toile,

    One thing is absolutely sure: if you want to collect major damages, you need a claim of negligence in your complaint. Tila, Respa, Fdcpa, etc. are all statutory-damage actions with limited damage amounts.

    Your true damages (can’t sleep at night, can’t function, loss of enjoyment of life, etc.), your health damages (if any – all you need is show that you saw a doc for stress and anxiety, or for stress-induced problems) must be asserted under a claim of negligence: negligence supervision of servicer’s employee by servicer, negligent handling of your case, negligent training of employee, negligent everything.

    You want to make it very painful for them and not cost-effective to defend. You want them to walk away, realizing that they’re going to pay and arm and a leg.

  4. @ joann, I understand. My hesitance, that I can’t get into here, is fear of waking a sleeping beast. All in good time. When the beast least suspects…..

    “Those who know don’t tell and those who tell don’t know.”

  5. @Ian, you have never seen this before, maiden lane bailed out the biggest insurer of MBS, a little company named AIG, so much so, that the prick over at BAC went back to geithner and bernanke, demanding more to absorb their own securitizations at merrill.

    And we thought the fractional gold standard was a scam?

  6. The reason for the penalty is homeowner has a right to negotiate or apply for mod with beneficiary so there must be timely notice. Harm is you were never notified of who that was. Further harm is the assignment came after the default or simultaneously with the default – there was no chance to prevent the default by contacting this party. Related to that is a statutory claim in California (for a whole $300) for no response to a Demand for Beneficiary Statement (Cal. Civ. Code 2943 et seq.). It must be done within specific timeframe re before and after default and scheduled sale ect. The point is though – How could you do that with the so called now assigned now “true” beneficiary if you never received notice of his existence? The contact on the NOD for “amount you must pay” is not a representative of this beneficiary (and the one named on the NOD is defunct and sold his interest years ago and was paid in full). What I want to know is – doesn’t a new NOD by the “new” beneficiary (he suposedly purchased this years ago anyway and wouldn’t purchase a mortgage in default or from A as in ABCD ect ect) have to be filed now before a foreclosure can take place? How can you be in default at all to a defunct originator who sold the mortgage years ago and now that NOD is used to justify the “new” assignee foreclosing without any declaration of default or “amount you must pay” coming directly from him or person of authority who can speak for him with direct knowledge of his records not just third party servicer records?

  7. E. Tolle

    Just file it in federal court. It’s a statutory penalty. It’s a done deal – you weren’t notified by the new beneficiary. Maybe I read what you read. Someone said it takes about 60 days to get it. Just don’t let them try to get off the hook by saying they aren’t actually a beneficiary because they are a trustee for a trust and not a beneficial owner (and this is what they say all the time and get away with). See RE Vogan CA.

    You don’t have to prove any harm to get it but can make further claims for harm – just don’t have to or have to prove it to get the penalty…..I think…..honestly every time I say anything here I am winging it… and hope anyone who bothers to read it gets that….. just trying out my understanding and hope anyone will say it is right or wrong or provide insight.

    I suspect they are not actually the beneficiary and know it and don’t want to send out notice of ownership (as in validating the bogus fraud assignment from the servicer) They just let the servicer record anything and pretend – “we didn’t even know about it”. “Servicer did it.”

    Throw in other federal claims – TILA claims if you have them and RESPA claims – (THE REAL ESTATE SETTLEMENT PROCEDURES ACT AT 12 U.S.C. 2605(e) AS AMENDED) for instance for no response or late response or wrong response to qwr’s plural.

    These claims are small potatoes for attorneys but add up to something helpful for homeowners. They could use it for food or to pay an attorney for a few hours time.

  8. @E.Toile,

    I suspect that the reason it hasn’t been included in my complaint and the subsequent discovery request(s) is that my loan wasn’t transferred on or after May 19, 2009. In fact, it happened 2 years earlier. Although, now that you mention it, my 2nd was transferred twice after that date.

    Sorry I couldn’t help. Thanks for pointing that out, though.

  9. This is specifically what I’m looking at:

    Pursuant to Section 131(g), the new owner or assignee of a mortgage loan must notify the borrower in writing within 30 days after his mortgage loan is sold or otherwise transferred. The notice must include:

    1. The assignee’s identity, address and phone number;
    2. The date of transfer;
    3. Contact information for an agent or party having authority to act on behalf of the assignee;
    4. The location of the place where transfer of ownership of the debt is recorded; and
    5. Any other relevant information regarding the assignee.

    Effective July 31, 2009, the maximum penalty that an individual consumer may recover for a TILA violation in connection with a closed-end loan secured by real property or a dwelling will increase from $2,000 to $4,000.

  10. @E. Toile,

    My complaint does not refer specifically to section 131. He does allege violation of 15 USC Paragraph 1641 (2)g. Nothing about section 131.

  11. @joann, thanks….I’ve seen that action. I don’t fit it, and generally class actions don’t suit me. A gal came thru here a few weeks ago and posted about this. It sounds like an easy claim. Someone should get something outta this good for nothing administration.

  12. @E. Tolle:

    “Has anyone acted on this? How does one go about claiming this? Any ideas? I’m due”.

    Abby posted this today – it is a class action using Truth in Lending Act (15 USC § 1641)

    Abby in CA, on January 19, 2012 at 10:15 am said:

    “California Class Action Complaint – Huezo v US Bank -TILA etc.


    In another case in CA that claim alone caused the appeals court federal district court judge to say he had jurisdiction at his discretion for the homeowners several other “state” claims (including quiet title) because they were “pendent”. There is much in the case as well as his distinction between the trustee on the deed of trust and the trustee for the trust (trustee for the trust does have liability for 15 USC § 1641).

    I was tuning out everything TILA because of the statute of limitations of 3 years until I realized what this was all about when I got an ADOT.

    So this class action if accepted – does it mean if you have US Bank on your ADOT (and someone different on your note as it says) you are automatically included?

  13. ANONYMOUS- your last post underscores the subprime ‘refinance’ once again.
    And speaking of insurance fraud, I just read a debt collector/mortgage servicer’s home page, they collect mortgage payments for, among others, MONOLINE INSURORS….. What is this about? (sorry, there was not one other word besides the mention) When any of the monolines,Ambac, MBIA, MGIC, Radian, etc., pay off on defaulted mortgages, I thought that they were then sold to debt collectors/hedge funds/ distressed debt buyers: This would indicate the the bond insurors are ending up with the notes after they pay off the default, and resubmitting them for ‘servicing’. ? (first time I have ever seen this)
    NOTE: an MBS defaults when losses rise above 7%. The entire structure is collapsed, although 93% of the remaining loans are current. The default of your loan has nothing to do with whether or not you are current. The bond trustee knows that the costs associated with addressing a 7% default rate will put them in the red. By the way, I understand that bonuses were paid to push the loans into defaul faster and faster. Once the pools went bust, all the imbeciles who had a hand in it could look up helplessly, as cretins do, and say “hey, damned deadbeats bought more house than they could afford”!

  14. That’s funny, I just tried to access justice.gov to find out more about that bill and its repercussions, but the site’s been taken down by Anonymous. No, not that ANONYMOUS, the other one.

  15. Has anyone acted on this? How does one go about claiming this? Any ideas? I’m due.

    As part of the Helping Families Save Their Homes Act (the “Act”), Congress amended Section 131 of the Truth in Lending Act (15 USC § 1641)(“TILA”) to include a new provision (Section 131(g)) that requires the assignee of a mortgage loan to notify a consumer borrower that his loan has been transferred. This notice requirement became effective immediately upon the President’s signature on May 19, 2009, so steps to implement it should be taken immediately. Failure to comply could result in civil penalties of up to $4,000.

  16. Right, ANONYMOUS. And—unless the truth comes out and people start being prosecuted, and/or we get Glass Steagall back or something like it in place—the criminals will just keep on keepin’ on…

  17. Ian and Enraged

    In order for that to have happened, the “loan” must be a current Freddie/Fannie. And, remember although servicers are supposed to advance payments to trusts, they do not, at least not for the subprime. All they have to do is deem “loan” non-collectible and no advances necessary. It would be pretty silly for them to advance, as most of the tranches have been paid off or paid down, with remnants in Maiden Lane. And, we all know by now, anyway, that security investors are not the creditor/lender.

    As to subprime refinances, here is another thought. Subprime only. Servicer places Fannie/Freddie loan in false default (and this was easy – multiple ways to do it). Servicer reports default to Fannie/Freddie, servicer purchases the “collection rights” to the “loan” from Fannie/Freddie (they can do this at anytime). Servicer collects insurance on the false default. Servicer “refinances” the collection rights for unidentified creditor (there is no lender). Thus, Freddie/Fannie is paid off –just not by you. You remain in default, and every mortgage refinance, thereafter, is a modification of collection rights. And, no funding necessary for modification of collection rights – refinance payoff check went nowhere. Again, however, if cash-out involved some “lending” was involved — just not a mortgage. Great way to get borrowers to, unknowingly, reaffirm a false debt. The “candy.”

    Each time you refinance, nothing prior is paid off, there was nothing to pay off as mortgage is gone. But, insurance is collected, again, on false default. The refinances are not actual mortgages, even though you were told they were. The major problem is that they are recorded as mortgages, but, in actuality, none of the prior subprime recorded refinances are ever mortgages, and nothing prior is paid off. Mortgage title, never mind your credit, is destroyed. But, they dd not worry about this when it was occurring, because they knew that if you did not pay, all they had to do was cry to the court and tell the judge — HE/SHE did not pay. And, the judge says — OK.

    Without a complete history as to all accounting, including from Freddie/Fannie Mac, homeowners are the dark. And, Fannie/Freddie?? They divulge nothing. Why? Claim “proprietary” as to trade secrets. Why did Fannie/Freddie do this? Because they then invested in the subprime securitization of cash flows to collection rights refinance. Ian is right, higher yield was always the goal. And, as Freddie/Fannie got deeper, they started reinstating collection rights to loans — themselves..

    Was Freddie/Fannie ever your lender/creditor? No. Was the servicer ever your lender/creditor? No. Were security investors ever your lender/creditor? No. Can you sue any of these parties for TILA violations? No. Did you ever actually have a lender? No. A secured mortgage? No. Reaffirmed debt collection as to subprime refinances? Yes.

    Creditor to “collection rights” — unknown. And, what caused the crisis? Leveraging upon the false “mortgage loan” — leveraging upon cash flows to collection rights. And, leverage upon leverage – they did.

    Know I will get much grief about this here. But, in order to demonstrate, must go back, cannot focus on the last refinance in question. However, and know cowboy is riding, accounting for last refinance IS important. .

    The fact that AGs are even in discussion with banks is telling. But, damages on table are no where near to compensate. It is strictly a strategy to put all to rest — and, move, on as this administration would like to do. Another administration would do better? Not likely. Another avenue? Not while these AGs are still in talks that would mitigate away borrower and consumer protection rights.

    A fine thread between moving the economy forward (which is awfully difficult since this country has given away much), and sacrificing victim rights. Who wins? Your answer.

  18. @ Enraged,
    Yes, as soon as I posted below I thought I might have heard “my” theory from somewhere else. I think I remember that article of Neil’s. I know that the idea of double-dipping is not a new theory. I just thought that maybe the so-called “document custodian” might be the mechanism–or one of the mechanisms–by which that double-dipping/double-pledging might be achieved, through agreements between pretenders (MERS? PSAs?) to which the homeowners are not a party and of which the homeowners have no knowledge.

  19. The thing that is missed in the “just walk away” considerations is that this is actually what the “banks” (many hats – which hat?) wish – it makes their dreams come true. They desire the foreclosure above all else. Goes against the common sense of most who look at this. They get new paper and their bottom line looks better than it does with at mod or with a short sale (just thinking this – not 100% sure).

    It is what a lot of financial and real estate broker interests wish would happen too and they think the faster it happens the better. Those entities never liked long time owners (no profit for them there) even though the banks did like them as long as they could talk them into tapping into that ever growing equity. But now that has gone away for good as a source of debtor slavery unless they can empty out the houses, sell them cheap and start the ball rolling again.

    The owner who pays even though the home is underwater is a long -time owner who has invested time and life and money in the house perhaps even for decades and even that is not primarily a financial business reason to stay. Those owners also get it that it will never recover equity after a drop of 50% that put their previously relatively low loan to value underwater. They still pay. They just plain wish to live in that house more than any other house for whatever reason. The powers that be tell them this is utter foolishness and perhaps it is from a purely money view. How much would it cost to rent the same though enters the consideration. Downsize how to where also enters the consideration. Even govt agencies now push “rent is better for most” while plans are to sell to foreign cash buyers. But the push comes from many sides to just walk away if you know what is good for you.

    Homeowner advocates want to see the principal writedowns and you would expect the banks would eventually do this to stop the walk outs but it hasn’t happened yet though and you wonder why. So now all including the long time owners who built up relationships with local mom and pops (more and more out of business) are forced into a buy and sell and trade and flip mentality that again benefits brokers of all kinds. And after all you can find a McDonalds if you move to Timbuktu anyway and Sally’s Diner is out of business anyway.

  20. @Ian,

    Thanks. Two years ago, I had never heard of Livinglies… Actually, I was just preparing to stop paying my mortgage and consulting an attorney.

    Anyway, so Zure’s theory makes sense, then. I was just answering him.


    Did you hear that? Garfield posted something along those lines 2 years ago.

  21. So, as I was saying, what the hell is going on…?

    Prime Suspect
    What’s with the glaring silence from Maryland Attorney General Doug Gansler regarding the federal settlement offer?
    By Brian Morton

    Published: January 18, 2012

    Part of the problem with big financial scandals like the whole real estate/subprime mortgage explosion is that it’s like a slow-motion collapse of a house of cards. We don’t know exactly where the tipping point was, and it’s incredibly difficult to sort out the blame afterward. Which is why there shouldn’t be any rush to sweep away the mess even now, four years later.

    Right now the Obama administration is in negotiations with a number of state attorneys general and the mortgage industry for a joint settlement that would grant the mortgage services immunity from further prosecution in exchange for a financial settlement, reportedly as little as $20 billion to $25 billion.

    To put this in context: Countrywide Financial, considered to be near the center of the giant money-sucking vortex that was the subprime fiasco, issued $424 billion in loans before it went belly up and was absorbed by Bank of America. And according to a House of Representatives resolution against immunity, the $8.5 billion settlement agreed to with BoA would cover only 2 percent of that sum—talk about your pennies on the dollar.

    Meanwhile, here in Baltimore, the city and the NAACP are still waging legal war against Wells Fargo, another of the mortgage servicers at the heart of the collapse. Black Baltimoreans won’t quickly forget the affidavits filed by former Wells Fargo employees that told stories of African-American applicants who qualified for prime loans being steered into subprime ones, and loan officers referring to blacks as “mud people” and subprime loans as “ghetto loans.”

    In a June 2009 story on the subprime collapse, The New York Times quoted an affidavit from Tony Paschal, a loan officer who worked for Wells Fargo in Northern Virginia, which said the company put “bounties” on minority borrowers, aggressively targeting them for loans and providing bonuses and vacation trips for those who brought in the most clients, mostly in Baltimore, Prince George’s County, and Southeast Washington, D.C. In an analysis of subprime lending in New York City, in comparison, the Times found that black households with an income of more than $68,000 a year were five times more likely to have a subprime loan than whites making the same amount—with an even larger disparity among Wells Fargo borrowers.

    States investigating the collapse have found shocking instances of alleged mortgage fraud, many centering around a practice called “robo-signing,” where banks were found to have filed false papers in state courts, signing off on mortgages without verifying the content or veracity of the documents.

    So why would there be such a rush to dispose of the whole mess so quickly, when there are still thousands of homeowners “underwater,” owing more on their homes than they’re worth? And what’s with the glaring silence from Maryland Attorney General Doug Gansler regarding the federal settlement offer?

    A number of state attorneys general have backed out of the federal government’s settlement: California’s Kamala Harris, Kentucky’s Jack Conway, New York’s Howard Schneiderman, Delaware’s Beau Biden, and Nevada’s Catherine Cortez Masto have all balked at signing off on the deal, Schneiderman even getting kicked off the committee working on the 50-state settlement by lead AG Tom Miller of Iowa in August.

    Two weeks ago Gansler announced a settlement with Wells Fargo, Golden West, and Wachovia over alleged deceptive marketing of mortgage products, but the sum was relatively small—Wells Fargo will pay only about $940,000 as restitution to customers in its “Pick-A-Payment” program who lost their homes to foreclosure. But other than that, Gansler has taken no public stand regarding the 50-state settlement.

    Why the tight-lipped posture?

    Well, pardon our cynicism, but we live in a political world, and Gansler is a political kind of guy, so we can make a few assumptions.

    Gov. Martin O’Malley has only two years left in office. There aren’t a whole lot of high-profile offices in Maryland with the kind of statewide visibility for running for the job once O’Malley’s gone, but attorney general is one of them. Gansler, who turns 50 this year, doesn’t seem to be the type of guy to sit in the AG’s office for the rest of his career like his predecessor Joe Curran. Gansler’s the kind of pol who likes to talk to the media (something that got him in some trouble when he was the state’s attorney from Montgomery County prosecuting the beltway sniper case), and those are the guys who politically don’t stop until they have the brass ring.

    In 2014, there’ll be another wide-open gubernatorial election, the kind where you’re going to need a whole lot of money for the primary, and, depending on whether the GOP can salvage a candidate from the remains of what Smooth Bobby Ehrlich has left of their party, possibly the general election as well. And pissing off the financial community with a long, protracted fight over immunity for Wall Street mortgage lenders is one way to shoot yourself in the foot when it comes to big-dollar fundraising.

    Of course, we could be wrong. That’s our cynicism talking. But it would be nice for Gansler to step up and tell us all, one way or another.

    > Email Brian Morton

  22. Enraged- along the lines of your query, foreclosure failed by servicer/trust, next year Fannie/Freddie shows up: there hasn’t been much mentioned about ‘double selling’, or ‘double funding’. Entity such as Ameriquest pays off homeowner ‘loan’ w/refinance on a Monday. Lien search shows only ‘loan’ being paid off. Ameriquest also sells loan to Fannie/Freddie within hours, lien search shows only ‘loan’ being paid off. Now two loans on same property. Servicer (debt buyer) charging 12% on Ameriquest loan, paying Fannie Loan payments at 6%, pocketing difference. Loan due to fail anyway, but lucrative in the meantime. Now foreclosure is carried out, Still paying Fannie but Fannie doesn’t know about other loan. All loan numbers changing on all documents constantly. Fannie had a 60billion hole in their financials as far back as 2000,if I recall. And getting worse by the day. Whaddya think? Neil posted just one article about double funding 2 or so years ago. Check it out.

  23. Waaaaay too little, waaaaaaay too late!

    The New and Improved HARP. Yeppeeeeeee!

    HARP Mortgage Program Allows Homeowners to Refinance to Current Low Interest Rates.

    Editor’s Note: The November 15 announcement included comprehensive rules for the new HARP, which people in the industry are calling “HARP 2.0.” How lenders will implement these changes in their underwriting process has yet to be established. Bookmark this page and check back regularly, as Bills.com will keep you informed of updates to HARP.

    Update: HARP 2.0 debt-to-income requirements have changed. According to a Fannie Mae announcement on December 20th, lenders will not longer have to demonstrate that the borrowers have a “reasonable ability to pay, unless the loan payment increases by 20% or more.” This applies only to loans borrowers do with their current lenders through the manually underwritten Refi Plus system. Loan applications that go through the automated DU system (expected to be updated for HARP 2.0 by mid-March) will have to meet the basic DU 45% maximum debt-to-income requirement.

    New guidelines for the Home Affordable Refinance Program (HARP) were released by Fannie Mae and Freddie Mac on November 15th, 2011. The updated guidelines come on the heels of the October 24th announcement by The Federal Housing Finance Agency (FHFA) about expanding HARP. The goal of expanding HARP is to allow borrowers who are upside-down on their homes or who have little equity to refinance at today’s low interest rates. The hope is that this will both stabilize the housing market and boost the overall economy, by putting extra dollars in the pockets of consumers who are likely to spend them.

    Mortgage experts are optimistic about the new HARP. “Although there is still a good deal of uncertainty surrounding the specifics of how the expanded HARP program will be implemented at the individual lender level, the November 15 announcements from Fannie and Freddie do provide a source of encouragement for the equity challenged segment of the market,” said Peter Citera, vice president at Chicago Bancorp and mortgage education director at the Real Estate Institute.

    Approximately 4 million Fannie and Freddie borrowers owe more on their mortgage than their homes are worth. Across the US, nearly 11 million are underwater, or about 22.5% of all outstanding loans, according to CoreLogic, a data provider to mortgage underwriters. About 2.4 million hold less than 5% equity in their homes.

    HARP At a Glance
    HARP allows homeowners facing difficulties refinancing their mortgage through conventional methods to apply for a refinance of their mortgage. A homeowner that is current with their monthly payments but unable to refinance due to a drop in the value is the typical prime candidate for the HARP program. The ultimate goal is to allow a homeowner to do a mortgage refinance for a lower interest rate and overall monthly payment. Here are the general eligibility guidelines for HARP:

    •There is no loan-to-value cap in the new HARP, for fixed-rate loans. This is the most significant change of HARP 2.0. Under previous versions of HARP, the LTV could not exceed 125%.
    •The loan on your property is owned or guaranteed by Fannie Mae or Freddie Mac. Determine if you have a Fannie Mae or Freddie Mac loan by going online (check Fannie; and check Freddie) or by calling 800-7FANNIE or 800-FREDDIE (8 am to 8 pm ET).
    •At the time you apply, you are current on your mortgage payments. You can have one 30-day late payment in the past 12 months, but none within the past 6 months.
    •You have a reasonable ability to pay the new mortgage payments. Editor’s note: Fannie Mae removed the “reasonable ability to pay” clause. Please read the update at the top of the page for more information.
    •The refinance improves the long-term affordability or stability of your loan.
    HARP Changes for Lenders and Effects on Borrowers
    The following is a summary of key changes found in HARP 2.0. Some key underwriting details are not yet announced, and are expected to be released before March 2012.

    Limited Liability
    What’s new: A key provision of the new HARP is that it limits lenders’ liability in cases of loan default. Essentially, Fannie and Freddie will not force the lender to buy back a non-performing loan.

    Effect on you: This change should greatly expand HARP’s reach. Lenders will be much more eager to offer HARP loans, where they were previously reluctant. With more lenders participating, you will have an easier time getting a HARP mortgage.

    Lender Fees Dropped
    What’s new: Fees that Fannie and Freddie charge lenders for high LTV loans are being cut.

    Effect on you: The reduced fees are passed on to you, making your loan cheaper. If you are financing to a 15-year or 20-year loan, the fees are cut even further.

    Credit Score and Income Requirements Relaxed
    What’s new: As long as your new HARP monthly payment is not more than 20% greater than your current payment, specific credit and income guidelines do not apply. The lender will have to determine that the borrower is an “acceptable credit risk” (and what that means is yet to be determined).

    Effect on you: A low credit score or high DTI is not enough to automatically disqualify a borrower. Also, if your family is now a one-income family when it was a two-income family on the original loan, you only have to show proof of one income, as opposed to conventional loans where all borrowers listed on the application must document income.

    Underwriting Requirements Relaxed
    What’s new No. 1: Mortgage Payment History: A HARP lender can approve a loan that has one late mortgage payment in past 12 months, as long as it did not take place in the last six months.

    Effect on you: You won’t be counted out for a mortgage late, when that could normally eliminate your ability to get refinanced at the lowest rates available. If you have a recent mortgage late, you can still apply for HARP, once you meet the relaxed mortgage late requirements.

    What’s new No. 2: Relaxed Foreclosure & Bankruptcy rules: Your HARP loan could be approved, regardless of how recently a borrower filed bankruptcy or experienced a foreclosure.

    Effect on you: Normally, if you filed for bankruptcy or experienced a foreclosure you would have to wait years before you could successfully refinance.

    Occupancy Requirements Relaxed
    What’s new: Owner Occupancy: HARP loans are no longer restricted only to owner-occupants.

    Effect on you: You can now use HARP to refinance your second home or investment property.

    Lenders Must Show that a Borrower Benefits
    What’s new: Lenders must show that the HARP mortgage borrower derives one or more of the following four benefits in the new loan:

    1.Reduce the size of the monthly payment
    2.Change to a more stable loan product, such as moving from an adjustable-rate mortgage to a fixed-rate mortgage
    3.Reduce the interest rate
    4.Reduce the loan amortization term (moving to a shorter-term loan)
    Relaxed Condominium Requirements
    What’s new: HARP eligibility used to require that no more than 10% of units in the complex be owned by one person and that no more than 20% of owners in the complex be behind on their HOA dues. These requirements are now removed.

    Effect on you: More condo owners will now qualify for HARP. If you own a condo, your qualifying for the HARP program is no longer dependent on your neighbors’ finances.

    “Condominium owners have perhaps the best reason to be optimistic; lenders are being relieved of the responsibility (for HARP refinance loans only) to ensure that condo projects meet the often strict project approval requirements of Fannie Mae and Freddie Mac,” Citera said. “Borrowers living in condominium projects that have seen a sharp increase in the number of renters, or those that have experienced some level of budgetary stress, will be much more likely to find relief under HARP 2.0 than they have under existing programs (as long as their loans are owned by Fannie or Freddie).”

    Hold Your Horses
    Although applications may be submitted for new HARP 2.0 mortgages in December, 2011, Bills.com believes the bulk of HARP mortgages will not be approved until March, 2012. Both Fannie and Freddie must update their automated loan underwriting/approval software by March, 2012. Until then, while lenders may approve HARP mortgages by manually underwriting the loans, loans that are manually underwritten expose the lender to greater risk. If a manually underwritten loan defaults, the lender will be required to buy back the loan.

    Given the protections that the lender will have once the automated underwriting programs are updated and ready in March, 2012, it seems very likely that most loan originators will wait until March, 2012. Be ready to move forward with an application, once lenders start taking them, but be prepared for a very long process before your loan closes.

    Before refinancing, borrowers should know whether their current loan is a recourse or non-recourse loan and also be familiar with their state’s anti-deficiency laws. Refinancing a non-recourse loan could expose the borrower to responsibility for a potentially huge financial obligation where no such obligation currently exists.

    Recourse, Non-recourse, and Anti-deficiency
    In some states, refinancing can remove the consumer protections, called anti-deficiency laws, which protect underwater homeowners who default on their mortgages. Bills.com recommends homeowners learn the anti-deficiency laws in their states, and determine if a mortgage refinance changes their rights. Anyone with a non-recourse loan should carefully weigh the decision to turn a non-recourse loan into a recourse loan.

    Basic HARP Requirements
    Not everyone who is underwater will qualify for HARP 2.0. Below is a summary of the basic requirements:

    1.The loan must be owned or guaranteed by Fannie Mae or Freddie Mac
    2.The loan was sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
    3.The loan was not refinanced under HARP previously, unless it is a Fannie Mae loan that was refinanced under HARP from March through May, 2009.
    4.The loan’s current loan-to-value (LTV) is greater than 80%.
    More HARP updates will be released both by lenders and by Fannie and Freddie, so keep checking with Bills.com to stay updated on details of the new HARP program.

  24. Hard to understand what the hell is going on…

    Yesterday, Matt Weidner wrote something about the settlement being as good as dead…

    Today, 2 more banks have decided to join in.

    What gives?


  25. If only I knew then what I know now I would not have paid a toxic product on time until broke. Big mistake. Stop paying while you still have money in the bank. Don’t literally “walk out”. Others who are walking because of simple business decision related to the never to be recovered drop in equity should stay put too.

    Demand to see the “ownership” of who you have been paying all this time in court. Demand to see the “ownership” of the modifier before applying for a sham modification (even if you prefer to walk anyway and definitely before you sign away your rights to question the “lenders” “ownership” forever in the fine print waivers which are probably still there in the mod agreements).

    This was posted a few days ago:

    @Christopher King
    “We are about to start putting up certified cashier’s checks to BoA on Presentment and demanding the original note and mortgage hahahahaa”

    Anyone with the where with all to do this should do it. Wish a ton of homeowners would do it in mass. Read up on default and dishonor and presentment in the UCC ect.

  26. @Zure,

    Might that explain how a foreclosure was filed by… let’s say Reconstruct, on behalf of the trustee. Reconstruct messed it up and was forced to dismiss or the judge found against it for that specific action… and a year later, Fannie sues in foreclosure?

    People do report, after all, that they were sued consecutively by one or two entities… First by B og A. It didn’t go over too well. B of A dismissed w/o prejudice. A year later Deutsche Bank came on the attack with the big, German artillery… and won!

    Why Not? By now, anything appears possible.

  27. Been researching some and have come up with a theory that I wanted to try out on you guys…it’s off-topic for this particular thread, but when has that stopped us from posting something (Ha!)?

    This is my theory:

    The “document custodian” agreements and the supposed endorsement “in blank” are what purportedly allow more than one pretender lender to claim rights to enforce the same Note.

    What I mean is this:

    Let’s say a homeowner signs a Note with Countrywide. Countrywide sends the Note to Recontrust, which is purported to be Countrywide’s document custodian. And Countrywide may in fact have a valid custodial agreement with Recontrust. Recontrust was, after all, a subsidiary of Countrywide.

    Countrywide then “sells” that same Note to Fannie Mae but Countrywide doesn’t transfer the Note to Fannie Mae–the Note remains at Recontrust. BUT, Fannie Mae ALSO has a custodial agreement with Recontrust.

    If you didn’t already, you see where I’m going with this, i.e., that BOTH Fannie Mae AND Countrywide can then claim that Recontrust is holding the SAME Note on behalf of BOTH Fannie Mae and Countrywide. This would especially be purportedly true if the Note in question were in fact endorsed in blank. However, we now have enough evidence that Notes were almost NEVER endorsed except when they were endorsed YEARS after they should have been, generally for purposes of litigation.

    Perhaps this is where MERS really is supposed to work its magic, since MERS members are supposed to be able to transfer Notes among each other without assignments (and possibly without endorsements?).

    So ultimately, when it comes time to foreclose, the pretenders can decide among themselves who will be the one to foreclose because they have set it up amongst themselves that they can all claim, seemingly plausibly, to be the owner/holder of any given Note. The reason I bring this up, as I said earlier, is because this is where the evidence seems to be leading in a case I am following. Does any of that make any sense? Does that lead anywhere? Not saying it does, not saying that argument should be made in court, etc., just asking if that is a possible scenario. Please comment, and keep in mind this just occurred to me and I haven’t fully fleshed it out and it might not make as much sense in writing as it seems to in my mind. I’m not an attorney, yada yada…

  28. A Man,

    You know, that weird feeling I mentioned earlier? Evensince the bailouts, i have felt it everytime I ‘ve read something about the “profits” made by B of A, Chase and other banks. I know that it is simply impossible if the rules are respected, especially now that they all have to defend so many lawsuits.

    We’re looking at numbers that do not exist and erroneous conclusions by the “expert” whose only motive is to justify another obscene bonus they will give themselves in the short future.

    It no longer fools anyone. Since our voices are not heard or even listened to, walking away is as good as closing all accounts with those banks and ceasing all relationship. Actually, I wouldn’t walk away. I would stop paying but I would stay put. Let the “experts” handle it.

    We will prevail. Common sense dictates it.

  29. This is called divine justice.

    Homeowners were sold a bill of goods and they bought it all, hook, line and sinker, simply because the “experts” told them it was the right thing to do at the time. Many of them didn’t qualify for a mortgage and somewhere, deep in their soul, they had that weird feeling that something wasn’t completely right. They voiced it (as I did) but they were assured and convinced, with graphs, charts and statistics, of the opposite and enticed into putting themselves into a horrendous, financial situation. For several years before I made the jump into homeownership, I received a barrage of unsollicited mails and phone calls, vanting the merits of homeownership and discrediting rentals. It was purposely, intentionally and wilfully done to us all. I still can’t get over the number of elderly who were sold that atrocity called “reverse mortgage” and who ended up losing the fruit of an entire life of planning, saving and working.

    Homeowners’ lot worsened instead of improving in accordance with their expectations and the promises made to them. They lost their jobs over something they had no control over, they lost their pension plan, they lost their health insurance and, finally, they lost the home they had worked so hard at acquiring, on lenders representation that it was the only way to go. “Social Security is bankrupt”, they said. “Homeownership is the only way to guarantee that you will not be left in the cold when you no longer can work”. Many of those homeowners have now lost much, much more than they ever bargained for: their health, their hope for the future, their trust in government and their ability to fall back on their feet. For some of us, it is too late: we can’t start anew.

    We learned from the best: we learned from the “experts”. And now, because we were taught so well, we are acting likewise: walking away from the unpleasantness visited upon us. A taste of their own medicine.

    Let the “experts” figure it out and fix it. They wanted money. A lot of it. Ours. They have it. Let’s see what they do with it.

    There is a God!

  30. Yes, more donkey feathers here. There are strategic defaults, and there are defaults because the “borrower” finally realized even if he paid off his mortgage in full, he could never get equitable title because the true creditor might never be determined.

    Not having a valid mortgage because someone with more financial sophistication whom you relied on to be truthful defrauded you…PRICELESS!

  31. In the mean time BofA is at a profit.


    And there stock has been climbing rapidly in last two weeks outperforming the stock market. Making money from air.



  32. Here we go again with this schizoid stuff about scaling back mortgage principal, analogous to a modification.

    Principal reduction authorized by whom? The owners of these millions of notes are….?

    How do the pretenders authorize principal reduction. The same way modifications are done: doesn’t happen.

  33. […] Follow this link: Just Say No — Strategic Defaults Spreading Virus — Christian Science Monitor […]

  34. i say Great !….and this should all be laid on the neck of Hank Paulson for allowing the moral hazard of his TARP switch-a-roo to save the banks and not the homeowners…..

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