Replies

Judges? They would have nothing to do with it in most states. In a chapter 7 they rarely will sign off on a mortgage reaffirmation agreement anyway.

A during BK mod is up to the bank. Hell, ANY mod is.

As far as which way foreclosure/mod is a more probable loss, I’d go with this scenario. Most of the ‘first time’ home buyers who could not have qualified for a conventional mortgage, will most likely default on a mod as well. That is IF they ever get to “permanent mod” status. Something pathetically few qualified folks ever reach because of bank obstinacy and incompetence.

Here’s the issue with principle write-downs. What happens to the guy who is making his payments despite loss in market value? Does he get a readjustment too?

I’d argue the best way to handle that is with a partial principle forbearance. I think the current guideline limit is 30% of principle. Just set aside whatever amount, up to that percentage as a ballon payment at the end of the mortgage.

But banks for the most part are not even doing this.

Right, I was talking about the bankruptcy cramdowns. The banks won’t do these permanent mods with principal writedowns because they don’t have to realize the actual loss on their balance sheet for now. Since mark to market was eliminated they can just keep the fantasy valuation on their books and no one is any the wiser, forestall the eventual disaster to later date when they have retired and their successor has to bite the bullet.

First time homebuyers and others who could never afford their mortgages have mostly defaulted by now anyway. The tidal wave we are now facing is Alt-A’s and Option Arm Resets or Pick Arms. These are people for the most part who have been making their payments-reduced teasers-but who will default when the reset comes and their monthly payment triples. These people are the ones that the programs should set out to save. In addition, the primes are getting killed now and the over $1millions are taking a hit.

The largest single determinant in whether a home will be foreclosed upon is equity. If there isn’t any or it is negative, people walk. So if the bank has a 150k mortgage and the house is worth 125k, and the bank forecloses, they will realize around 100k after costs, if they can actually sell the property. So from a purely business standpoint it makes sense to permanently mod the mortgage. But you do have the moral hazard issue, which is why they only talk to people who are 90 days late or more. However their mod departments are pathetic and slow and by the time they get off their butts, too much water has gone over the dam.