Below is a post taken from ml-implode that details some of the perils of a borrower trying to negotiate their own loan modification.
Posted on September 3rd, 2008 www.ml-implode.com
I am infuriated. You will not believe this story. This sure looks as though Countrywide/BofA has conspired to decieve a homeowner and shareholders. They are getting these borrowers at their weakest moment with a plan that is portrayed as ‘help’ but will ultimately lead to disaster. This is much worse than stated income, no doc and no appraisal loans were in the first place. WHERE ARE THE REGULATORS! If you can’t see this train coming down the line in 5-years you are blind.
For those of you who do not believe the housing and mortgage implosion will be around for years, here ya go. I can talk about ’subprime being the proverbial canary in the coal mine’, default rates, loan loss reserves, max-neg caps, Pay Option ARMs, cure rates, capital ratios, write-down, Alt-A, Jumbo Prime and the GSE’s faulty underwriting systems until I am blue in the face but none of these things seem as overwhelming as this story. I understand and can quantify the prior list of threats. Countrywide has taken this to an entirely different level.
The New Game in Loss Mitigation – Put it off for 5-years with 2% rates and 200% LTV workouts, make the borrower sign away their life waiving all future claims and tell the shareholders it is ‘performing’. In 5-years this will bury the borrower beyond all recognition and force them into bankruptcy, but until then ‘problem solved’. WHERE ARE THE REGULATORS!
This is a true story that happened last week.
This borrower has an $800k Pay Option ARM obtained in 2005. Last month they hit their max negative cap of 115% and their payment went from roughly $3k per month to $5k per month. The total outstanding balance with the accrued negative amortization stood just above $900k. The home is now a rental and the gross rents are roughly $3k per month. The borrower moved out a few months back and are now renting closer to their jobs. The home is currently worth $515k according to Zillow.
They called Countrywide for help. Boy, did Countrywide help…helped themselves.
Countrywide immediately sent them documents making the new monthly payment less than $1600 per month by giving them 2% interest only for the next 5-years. At the end of 5-years it returns to its original terms, which will be a fully-amortizing loan that must pay off within the remaining 23-years. At this point undoubtedly the borrower will default. This 5-year ‘deal’ is far worse than an original 100% 2/28 or Pay Option ARM ever was.
The borrower received the documentation on a Friday and had to have them back by the following Tuesday or the ‘deal’ would be rescinded. The borrower also had to agree to waive their rights against any claims against Countrywide in the future for any purpose. The borrower accepted immediately. Countrywide saved themselves by throwing the borrower under the bus. WHERE ARE THE REGULATORS! They are too busy blaming everyone else and not doing their jobs.
Essentially Countrwide:
· Refinanced a $515k home with a loan balance of $900k
· Put the borrower underwater by $385k in a pen stroke without recourse
· Stuck the borrower in a home that they can’t sell or refinance
· lured the borrower by using lo w monthly payments
· Hid an ultimate default and subsequent foreclosure
· Averted a 50% write-down and pushed out the loss indefinitely into the future
· WHERE ARE THE REGULATORS!
This is why homeowners should never do their own mortgage modification. Investors should never listen to the banks with respect to their exposure either. Banks are in such self-preservation mode, you do not stand a chance. Typical home owners have such little understanding of the market, interest rates, qualifying ratios, banks thresholds, the consequences of their actions or even of their own household balance sheet that a self-negotiated mortgage modification will end up looking like the one described here. The consumer stands no chance. I am all for banks ’working out’ loans but this out of control. WHERE ARE THE REGULATORS!
