I’ve been pushing really hard to get the next release of our software out the door, and have not been posting here as often as I’d like lately. The release is close, so expect to hear more from me soon. On to my post…
I have gotten a number of calls asking if the homeownership retention program announced by Bank of America is likely to have an impact on foreclosures in CA. This program is a settlement with the CA Attorney General, Jerry Brown, and other state attorney generals that were suing Countrywide / Bank of America for predatory lending practices. It is expected to provide up to $8.4 Billion to 400,000 borrowers nationwide, with $3.5 Billion to 125,000 borrowers in CA.
While $8.4 Billion is a huge number – roughly 7.75% of BAC’s market cap today – it is literally a laughable amount. Problem is that it equals only $28,000 per loan in California. I compared that number to the average amount a California homeonwer is upside down at the time of foreclosure – the average total debt is $26,200 more than they originally borrowed. So in the best case scenario this puts borrowers back where they started, in loans they fundamentally can’t afford.
Note that they clearly state that principal balance reduction will only be available on a limited basis to restore negative equity from pay option ARMs – which makes sense given that they really don’t have enough money to do much more. Instead the primary goal is to ensure “modifications are affordable”. Given that they simply don’t have the money to lower principal balances to affordable levels, that means more artificially low payments… the exact thing that got us into this problem in the first place.
So back to the original question, will it likely impact foreclosures? Sort of, but only temporarily.
They have graciously committed to not pursue foreclosure until they have contacted the owner and made a decision on program eligibility. So it appears to impact foreclsoures, except that the recently passed SB1137 required them to do that anyway – so this claim is little more than spin.
Since this completely fails to address the underlying problem of the original loan amounts often exceeding current market value by $100k or more I’d also say the impact will only be temporary. Though that may still be a long time. In one case I recently reviewed Countrywide had a loan balance of over $900k on a home worth $550k – they modified the payment to 2% interest only for 5 years. The homeowner can afford it for now, but what happens in 5 years? Your’e kidding yourself if you think values are going back to those levels that quickly. Do we really still want to be cleaning this mess up 5 years from now?
Bottom line, Jerry Brown and the other state’s attorney generals have given Bank of America a gift. The opportunity to avoid litigation while getting the state’s endorsement for a plan that will never work and buying them precious time to find a way out of their dire predicament. Like the bailouts it’s possible it may help save this finacial institution, but it will only delay our return to a stable and healthy real estate market.
Well said. Unfortunately, from my point of view, this deal has done nothing more than give distressed borrowers a false sense that cash is on the way.
Like you said, there isn’t nearly enough to go around.
This probably won’t do too much, but one possible flaw- you stated that this amounts to only $28k per loan, but not all of the loans were made under predatory circumstances. Perhaps a better statistic would be settlement amount per “predatory loan.” I have a Countrywide loan. No predatory practices. I am well upside-won but plan to make it through and pay it off…eventually.
What are your thoughts?
I simply divided their $3.5B for California, by the number of homeowners they said they planned to help, 125k, which equals $28k. They did not say anything about only helping those with predatory loans (they would never admit any were) – you may very well qualify as well. In the one case I reviewed they lowered the payment by 75% with the homeowner having done little more than inquiring.
I really like your website. I too am trying to help homeowners who find themselves facing foreclosure. I am a foreclosure attorney who works for most of the big name banks currently involved in the mortgage foreclosure mess. I have written an eBook all about how to stall your foreclosure long enough to successfully sell your house or to modify and reinstate your mortgage. It is available at http://www.ForeclosureDefenseSecrets.com. I also have a blog regarding the current mortgage foreclosure crisis located at http://www.ForeclosureDefenseSecrets.com/thoughts. Perhaps we can work together to alleviate the foreclosure crisis currently facing our country. Feel free to email me at ForeclosureDefenseSecrets@gmail.com.
That was a great post. I will have to bookmark this site so I can read more later.
Curtailing a large majority of future foreclosures by modifying the monthly payments to affordable levels will bring lenders back into the lending business and buyers back to buying, The real estate market can turn around quickly as buyer confidence returns and the pure diminishing supply vs. growing pent-up demand, real estate will lead us out of this recession just as “greed” related to real estate led us into it. 5 years may very well be enough time for everyone’s equity to become positive.
Hi Larry – while yours is a common belief and the stated reason behind these moratoriums, it fails to understand that real estate prices are FAR MORE a function of income and financing then supply and demand. You could stop all foreclosures tomorrow and it won’t bring prices back to their prior levels. Folks simply don’t have the income to support those prices without unrealistic financing or significant wage inflation.
This may help those who are still in their homes temporarily but what about those people who already lost their homes to forclosure or were able to do a short sale and get out.
Laura – I think you’ve hit on what will become a major issue with these plans – fundamental inequities! In addition to your example, are these loan mod programs fair to:
1. Renters who pay more than these low loan mod rates for similiar homes.
2. Owners who haven’t defaulted and are making loan payments 2-4 times higher.
While I don’t think troubled homeowners should bear all the burden for this crisis, I think it sends the wrong message to reward those who stop making payments. At some point it begs the question – why should anyone continue making their payment if by stopping they can get a better deal?
Loan modifications have become a joke! The banks do not modify loans, they restructure them by forcing the buyers to take or leave their terms. To add insult to injury the banks force the owners to waive all their legal rights to challenge the unlawful loan that violates FILA, RESPA or is outside the chain of title. You guys need to stay away from loan modification companies and go directly to a lawyer who understands what to do. Only a lawyer has the means to threaten the lenders with a lawsuit that can void a forclosure, rescind the loan agreement or REALLY modify the loan.
I totally agree with you. My husband and I currently have a loan with Countrywide in which was a negative amortization loan. This was not disclosed to us nor shown on the good faith estimate we received from Countrywide before signing the loan docs. There were other issues as well. We obtained an attorney and didn’t realize that they had also forged our names to documents we had never seen before. We only found out when our attorney subpoened the documents from the broker and countrywide. They also inflated appraisal on our home and income. People should contact an attorney before seeking a loan modification. They could be giving up their legal rights. We know because we were victims.
Could someone recommend a good attorney for me to contact? Email me at with a contact please alan@packintheusa.com. Country Wide pulled a bate and switch with my loan offering me a new lower interest rate at 4.25% for 5 years then when I asked if this temporary band-aid would disqualify me for the new home ownership retention program I was repeatedly told 1) I qualified for the new loan program and 2) by accepting this loan modification you will still be up for the “nation wide home owner retention program” As of yesterday I was told I no longer qualify because I am now in a fixed loan and that I am now not 60 days delinquent. I would be fine with that if Country Wide would have informed me that the agreed upon monthly payment including impound for taxes was accurate. They failed even when asked on several occasions to tell me the total payment I would be required to make. My loan amount went from $1400 a month to $1,935 a mo. That was the agreed upon amount including impounds for taxes. Now 60 days into this new loan they have added on an escrow for taxes which bring my payment to $2,400. Adding an additional $500 a month and disqualifying me for the “nation wide home owner retention program”. Let it be said that my original loan was for $450,000 purchased three years ago now they have added on fees and such that bring my new loan to $550,000 and the current value in this neighborhood is $295,000. Does one sit around and pay $550,000 for a property worth only $295,000?
Alan, you are a prime candidate for a modification of your loan. Based on the fact that you were given a loan which was different from what you had been told you were getting, I believe we could use that fact force the bank to modify your loan. I am the lawyer for Se Si Puede Yes We Can America Legal Services and we use a law based arguments to modify loans. Send me an e-mail and I will have my office contact you if you are interested.
Ed Peckham
edward@peckhamlaw.com
If you have a loan which was obtained between 2001 and 2007, there is a good liklihood that the original note has been sold overseas and lost or destroyed. These securized loans violate SEC laws and open the door to persons who are in default on their loans to get them modified under reasonable terms. If you are interesed in having a lawyer help get that modification send me an e-mail at edward@peckhamlaw.com and I will have my staff contact you for further communications. I am the lawyer for Se Si Puede Yes We Can America Legal Servics and we use law based influences against the lenders to help our clients modify loans.
I agree with the above poster “Ed Peckhad”…I was recently having a extensive discussion with my neighbor a couple weeks ago, and he apparentyl had underwent a loan modification. He was literally forced, as the poster said, to be locked into an agreement that initially looked extremely enticing, however after neglected details were uncovered, was actually just not financially feasible for him and his family. It is regrettable that such seemingly “professional” services can be so misleading. Dissappointing, and quite frightening. Thanks…
Mortgage loans has become more like a race among bankers and other competitors these days. That is why they approve the loan even for bad credit people. If you know that they don’t have good credit payment records and pretty sure that they are not going to pay you as well, why you want to loan him? It is a simple management fault that runs a big loss in billions of dollars. I’m guessing it is trillion.
The deal is good for nothing. There isn’t nearly enough to go around.
The real estate market can turn around quickly as buyer confidence
returns and the pure diminishing supply vs. growing pent-up demand,
real estate will lead us out of this recession just as “greed” related
to real estate led us into it. 5 years may very well be enough time for
everyone’s equity to become positive.
We are entering a new phase in the foreclosure market. Banks now have an inventory of home loans which are in default of about 3 years. That means we will have this housing foreclosure problem for another 3 years. Many of the loans which are in default are not being added to the inventory on the market because the banks don’t want to drive the prices down any further. Time is on their side. They got their bail out and now have the money to wait out the return of the market. Now is the best time to start working with the banks on modifying your loan. If you are upside down or behind in your payments, call you lawyer right away. Get things moving. Don’t wait. You may be one of the few who can acutally save your home if you move quickly.
My law firm has a very high success rate in modifying loans. We don’t take NO for an answer. We work the bank until we get the terms we want, not the ones they are willing to GIVE us. Call us.
Si Se Puede Yes We Can Legal Services
805-349-3866
The real estate market can turn around quickly as buyer confidence
returns and the pure diminishing supply vs. growing pent-up demand,
real estate will lead us out of this recession just as “greed” related
to real estate led us into it. 5 years may very well be enough time for
everyone’s equity to become positive.
I received a mod from C/W that is 3.5% on a $920K loan with a house worth $500K! It goes up in two years to 4.5 and then in two more years goes up to 5.5%. And my wife and I are on SS!!!! And they modified it without including the taxes which run $10K per year. Its a train wreck.
You are claiming that 125,000 people with loans or had loans through countrywide will receive around 28,000 in the settlement…but it states a minimum payment of less than 1,200 and will go up depending on sent in their claim forms. Did you forget attorney’s fees? I don’t think it will be anything close to that amount, and although some should receive the help, I believe you are giving false hope.
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