Three interesting news items on the foreclosure front. First from the Atlanta Journal Constitution comes the story of a man robbing a bank to pay his mortgage. Apparently, the man handed the teller at SunTrust Bank a note that read “give me the money … I need to pay my mortgage … Merry Christmas.”
I was beginning to think we might see some better alternatives for homeowners terminally underwater than bank robbery after the Treasury Department provided details on their upcoming Home Affordable Foreclosure Alternatives program that made some progress on making short sales and deeds-in-lieu easier for homeowners who work with their lenders rather than simply “walking away”. Yet, just days later, HUD issued a letter to lenders classifying short sales by homeowners looking to escape their prison of debt as “strategic defaults,” and making those homeowners ineligible for future FHA financing with few exceptions. Examples of acceptable exceptions include “death of primary wage earner,” or “long-term uninsured illness,” with no mention of job loss.
Now contrast that with the following story from Bloomberg News – Morgan Stanley relinquished to the lender 5 commercial properties in San Francisco they bought at the top of the market in 2007. The current value of the property is estimated at $279 million, close to half of the value when Morgan Stanley bought it 2 years ago. Alyson Barnes of Morgan Stanley assured reporters, “This isn’t a default or foreclosure situation. It is a negotiated transfer to our lenders.”
Let’s compare and contrast. When things got tough for financial institution Morgan Stanley, they got $10B in TARP money, they walked away from their mortgage as part of a “negotiated transfer”, and got to keep their investment grade A+ credit rating. Joe Homeowner, on the other hand, is left to choose from continuing to throw good money after bad (payment based loan modifications), ruining their credit and chance to buy another home (short sale, deed-in-lieu or foreclosure), or apparently, robbing a bank.
Fantastic piece of writing. Excellent job of really showing the disparity and uselessness of the current “solutions”!
Sean- Just watched your 11/09 report. I’m confused. You conclude saying banks are selling about all they take in however you report they took back 14,119 and sold only 3676. Shouldn’t they have sold 14000?
Rob
They sold only 3,676 on the courthouse steps to 3rd party investors. That is a completely separate issue from the fact that banks are re-sold almost as many REO’s as they took in. Sorry for not more clearly separating the two.
YOu are forgetting one very important point of Morgan Stanley– That being that they owned income property, and probably (I am assuming) had bought with a rather large down payment–hence, they had some skin in the game. They returned the property to their lender, and the lender may or may not be taking a loss. They could be taking a loss on expected earnings, but they may not be (perhaps) taking a hit on any equity lost, as is the case with so many properties where the borrower has chosen to walk away…
This does make a huge difference. The lender in Morgan Stanley (if I recall, it was Barclays) is now collecting the rent. They could be making a good return on that. I have not been able to see the numbers, but Morgan Stanley’s strategic default may not be “harming” the lender.