Say it isn't so...The Donald is getting some egg on his face. Trump Entertainment Resorts Inc. filed for Chapter 11 bankruptcy on Tuesday, immediately following the departure of Donald Trump as its Chairman. The casino missed a $53.1 million bond payment due in December, and it listed its total assets of $2.1 billion and total debt of $1.74 billion in its filing with the bankruptcy court. Trump noted that the casino represented less than 1 percent of his net worth and "my investment in it is worthless to me now." Too bad the board didn't get a chance to tell Mr. Trump ... YOUR FIRED... since he resigned instead.
And President Barack Obama is just signed signed the $787 billion stimulus package in Denver. The President signed the bill at the Denver Museum of Nature & Science, which is meant to emphasize his focus on energy related jobs and "green" buildings.
But stocks weren't too excited about the stimulus bill today, as the Dow Jones Industrial Average plunged over 250 points to below 7600 as of 10 AM Eastern. Ouch.
Tuesday, February 17, 2009
Monday, February 16, 2009
Foreclosures skyrocket in sour economy
In Morgan County, foreclosure rates have been increasing considerably, according to Myla Magennis, coordinator for the county’s sheriff’s sales. She said 506 foreclosures were recorded in Morgan in 2008, compared to the 163 in Monroe the same year. In 2007, there were 411 in Morgan County, while Monroe recorded 136.
The number of sheriff’s sales are probably the best indicator of how many homeowners are in financial distress.
Foreclosures only become part of the official record when the new deed is recorded, and with banks and mortgage companies in no hurry to announce that they’ve had to repossess a home, delays in recording foreclosures are commonplace.
Some homeowners also are able to renegotiate with their bank or find someone new to underwrite a different mortgage — or they make a deal that returns the house to the lender before foreclosure.
Morgan County’s foreclosure numbers are in stark contrast to 1999, when she began her current job. Then, Magennis said, “If we had two or three a month, that was considered a lot. Now, oh my gosh, they’re horrible.”
A lot of 2007 foreclosures were concentrated in the northern tier of the county, many in the huge Heartland Crossing development that sprawls across parts of Marion and Hendricks counties as well, she said. “Now, it’s just all over the county.”
Layoffs, reductions in overtime that workers had become accustomed to and home loans for 100 percent of the home’s value plus closing costs, or loans with adjustable rates, all have contributed to the problem. And home values have fallen, with a house in a newer subdivision that originally sold for perhaps $140,000 now listing at between $110,000 and $118,000, she said.
No-money-down loans, while they allowed people to own homes without first saving for years for a 20-percent down payment, also make it a lot easier for those people to walk away from a home that’s become a struggle to pay for, Magennis said.
The number of sheriff’s sales are probably the best indicator of how many homeowners are in financial distress.
Foreclosures only become part of the official record when the new deed is recorded, and with banks and mortgage companies in no hurry to announce that they’ve had to repossess a home, delays in recording foreclosures are commonplace.
Some homeowners also are able to renegotiate with their bank or find someone new to underwrite a different mortgage — or they make a deal that returns the house to the lender before foreclosure.
Morgan County’s foreclosure numbers are in stark contrast to 1999, when she began her current job. Then, Magennis said, “If we had two or three a month, that was considered a lot. Now, oh my gosh, they’re horrible.”
A lot of 2007 foreclosures were concentrated in the northern tier of the county, many in the huge Heartland Crossing development that sprawls across parts of Marion and Hendricks counties as well, she said. “Now, it’s just all over the county.”
Layoffs, reductions in overtime that workers had become accustomed to and home loans for 100 percent of the home’s value plus closing costs, or loans with adjustable rates, all have contributed to the problem. And home values have fallen, with a house in a newer subdivision that originally sold for perhaps $140,000 now listing at between $110,000 and $118,000, she said.
No-money-down loans, while they allowed people to own homes without first saving for years for a 20-percent down payment, also make it a lot easier for those people to walk away from a home that’s become a struggle to pay for, Magennis said.
Short Sales save a community
Sonoma County buyers are snapping up houses under $300,000 as soon as they're listed, a sign the lower-end market could be stabilizing
By MICHAEL COIT
THE PRESS DEMOCRAT
Published: Sunday, February 15, 2009 at 4:23 a.m.
Last Modified: Sunday, February 15, 2009 at 10:50 p.m.
Repeatedly shut out in attempts to buy a home for $300,000 or less, Joseph McCormick bid up the price on the next house.
Paying $284,000 -- $9,000 over the asking price -- was still a good deal for the Rohnert Park home, which sold for nearly twice that amount three years earlier.
The strategy worked, leaving the first-time buyer relieved to finally land a house after a sometimes frustrating seven months in the most competitive end of Sonoma County's housing market.
"It was difficult. I wasn't losing hope, but I was starting to second-guess myself," said McCormick. "It's a good feeling once you're in. I figured I'm very lucky."
Crowds of home buyers are snapping up much of what goes up for sale at the lower range of Sonoma County's housing market. In the process, there are signs that prices are finally beginning to stabilize in the market for homes under $300,000.
Sales are cutting into a glut of homes dumped on the market by banks that seized them in foreclosure proceedings or cash-strapped borrowers that unloaded them at discount prices to avoid foreclosure.
Reducing the supply of distressed homes is a critical first stage in stabilizing the housing market, now in the fourth year of a deep downturn.
"The bad news started there, and now it's got to end there," said Nick Dunlop, a Sebastopol appraiser. "It's just a feeding frenzy in that price range right now. It seems like it's solidifying the low end, and maybe that will work its way up."
Distressed properties have dominated county home sales for much of the past year as waves of foreclosed homes and short sales hit the market.
Sales surged as prices plummeted below the $300,000 mark. Four out of 10 homes sold in November and December were priced below $300,000 -- up from just 6 percent of the homes sold a year ago, according to Bay Area Real Estate Information Services, the region's multiple listing service.
Homes are selling faster than they are coming on the market. There was a 1.9-month supply of homes priced under $300,000 at the end of 2008, down from a 15.9-month supply a year ago.
"They're coming out in droves because they know there's no waiting any longer for prices to bottom out. There's definitely more buyers than inventory. Anything under $300,000 -- it's gone," said Logan Adams, associate broker with Remax Central in Santa Rosa.
Adams represents banks selling foreclosed homes. Last month, he had eight such homes -- all priced under $300,000 -- sell after one day on the market.
"Banks price them aggressively to get them off the books. They want them to sell fast," Adams said.
Bank-owned homes are selling in about seven weeks, about one-third the time of the typical short-sale property, which takes about six months to move, according to the multiple listing service.
The pace of sales has contributed to more bidding battles that push the prices of some homes higher. That has helped put a floor under prices overall at the low end.
"Now it will usually sell at the asking price or better," said Chris Smith, a Creative Property Services agent in Santa Rosa who lists foreclosed homes for banks.
Lenders occasionally attempt to generate higher offers by setting prices lower than comparable homes that have sold or are on the market.
A Santa Rosa home recently generated 26 offers because at $299,000 it was priced $70,000 to $80,000 under the likely market value for a comparable 6-year-old, three-bedroom house, said Toni D'Angelo, a Coldwell Banker agent in Santa Rosa.
"You get all these buyers tickled and enthused," she said.
D'Angelo's client offered $326,000 and didn't even get to make a second offer. The purchase price wasn't disclosed because the property remains in escrow, but D'Angelo said it likely didn't go above its market value.
Most lenders, therefore, go with prices based on recommendations from agents and appraisers, agents said.
"They have huge numbers and all they want to do is move them," Smith said.
Buyers are increasingly savvy about pricing since they have had the upper hand during a lengthy housing slump.
"They're pretty educated in this market. They look at a lot of properties before they make a decision," D'Angelo said.
Still, while they remain wary of overpaying, competition at lower prices has intensified the pressure on buyers to offer at least the asking price, if not more, agents said.
"Buyers are ready to write an offer the minute a property comes on the market. We're there and still it's multiple offers," said Theresa Teuma, owner of Legend Real Estate, in Santa Rosa.
Buyers who lose out could become more anxious in their quest for that first home or investment property.
Agents said several strategies can help buyers stay in the game at the hot end of the county's housing market:
Start your house hunt on the Internet. Eliminate any properties that have a pending sale, and be ready to tour homes the same day they come on the market.
Get pre-approval from a lender. That enables you to make an offer immediately.
Make offers ahead of the weekend. Many buyers look at homes on Saturdays and Sundays and make offers on Mondays.
Offer at least the asking price and consider going over by a modest amount.
"We have to work very fast in this market because if you don't, you lose," Teuma said.
More buyers are looking for homes because falling prices put a greater number of properties in reach of county residents who couldn't afford to make purchases as prices soared to record highs during the first half of this decade.
Investors also are buying up homes because rents will cover mortgage payments on lower-priced properties.
During his search for a home priced $300,000 or less, McCormick was beaten out by investors and others making large down payments. He increasingly felt a sense of desperation.
"We even made offers without looking at a home," he said.
McCormick, a derrick boat captain for the U.S. Army Corps of Engineers, navigated the county's housing market with determination and was rewarded. He paid $284,000 for a home that sold for $525,000 in 2005.
"It's the time to buy," he said. "These homes were a bit out of reach a couple of years ago. Now I don't even need roommates to help pay the mortgage."
You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.
By MICHAEL COIT
THE PRESS DEMOCRAT
Published: Sunday, February 15, 2009 at 4:23 a.m.
Last Modified: Sunday, February 15, 2009 at 10:50 p.m.
Repeatedly shut out in attempts to buy a home for $300,000 or less, Joseph McCormick bid up the price on the next house.
Paying $284,000 -- $9,000 over the asking price -- was still a good deal for the Rohnert Park home, which sold for nearly twice that amount three years earlier.
The strategy worked, leaving the first-time buyer relieved to finally land a house after a sometimes frustrating seven months in the most competitive end of Sonoma County's housing market.
"It was difficult. I wasn't losing hope, but I was starting to second-guess myself," said McCormick. "It's a good feeling once you're in. I figured I'm very lucky."
Crowds of home buyers are snapping up much of what goes up for sale at the lower range of Sonoma County's housing market. In the process, there are signs that prices are finally beginning to stabilize in the market for homes under $300,000.
Sales are cutting into a glut of homes dumped on the market by banks that seized them in foreclosure proceedings or cash-strapped borrowers that unloaded them at discount prices to avoid foreclosure.
Reducing the supply of distressed homes is a critical first stage in stabilizing the housing market, now in the fourth year of a deep downturn.
"The bad news started there, and now it's got to end there," said Nick Dunlop, a Sebastopol appraiser. "It's just a feeding frenzy in that price range right now. It seems like it's solidifying the low end, and maybe that will work its way up."
Distressed properties have dominated county home sales for much of the past year as waves of foreclosed homes and short sales hit the market.
Sales surged as prices plummeted below the $300,000 mark. Four out of 10 homes sold in November and December were priced below $300,000 -- up from just 6 percent of the homes sold a year ago, according to Bay Area Real Estate Information Services, the region's multiple listing service.
Homes are selling faster than they are coming on the market. There was a 1.9-month supply of homes priced under $300,000 at the end of 2008, down from a 15.9-month supply a year ago.
"They're coming out in droves because they know there's no waiting any longer for prices to bottom out. There's definitely more buyers than inventory. Anything under $300,000 -- it's gone," said Logan Adams, associate broker with Remax Central in Santa Rosa.
Adams represents banks selling foreclosed homes. Last month, he had eight such homes -- all priced under $300,000 -- sell after one day on the market.
"Banks price them aggressively to get them off the books. They want them to sell fast," Adams said.
Bank-owned homes are selling in about seven weeks, about one-third the time of the typical short-sale property, which takes about six months to move, according to the multiple listing service.
The pace of sales has contributed to more bidding battles that push the prices of some homes higher. That has helped put a floor under prices overall at the low end.
"Now it will usually sell at the asking price or better," said Chris Smith, a Creative Property Services agent in Santa Rosa who lists foreclosed homes for banks.
Lenders occasionally attempt to generate higher offers by setting prices lower than comparable homes that have sold or are on the market.
A Santa Rosa home recently generated 26 offers because at $299,000 it was priced $70,000 to $80,000 under the likely market value for a comparable 6-year-old, three-bedroom house, said Toni D'Angelo, a Coldwell Banker agent in Santa Rosa.
"You get all these buyers tickled and enthused," she said.
D'Angelo's client offered $326,000 and didn't even get to make a second offer. The purchase price wasn't disclosed because the property remains in escrow, but D'Angelo said it likely didn't go above its market value.
Most lenders, therefore, go with prices based on recommendations from agents and appraisers, agents said.
"They have huge numbers and all they want to do is move them," Smith said.
Buyers are increasingly savvy about pricing since they have had the upper hand during a lengthy housing slump.
"They're pretty educated in this market. They look at a lot of properties before they make a decision," D'Angelo said.
Still, while they remain wary of overpaying, competition at lower prices has intensified the pressure on buyers to offer at least the asking price, if not more, agents said.
"Buyers are ready to write an offer the minute a property comes on the market. We're there and still it's multiple offers," said Theresa Teuma, owner of Legend Real Estate, in Santa Rosa.
Buyers who lose out could become more anxious in their quest for that first home or investment property.
Agents said several strategies can help buyers stay in the game at the hot end of the county's housing market:
Start your house hunt on the Internet. Eliminate any properties that have a pending sale, and be ready to tour homes the same day they come on the market.
Get pre-approval from a lender. That enables you to make an offer immediately.
Make offers ahead of the weekend. Many buyers look at homes on Saturdays and Sundays and make offers on Mondays.
Offer at least the asking price and consider going over by a modest amount.
"We have to work very fast in this market because if you don't, you lose," Teuma said.
More buyers are looking for homes because falling prices put a greater number of properties in reach of county residents who couldn't afford to make purchases as prices soared to record highs during the first half of this decade.
Investors also are buying up homes because rents will cover mortgage payments on lower-priced properties.
During his search for a home priced $300,000 or less, McCormick was beaten out by investors and others making large down payments. He increasingly felt a sense of desperation.
"We even made offers without looking at a home," he said.
McCormick, a derrick boat captain for the U.S. Army Corps of Engineers, navigated the county's housing market with determination and was rewarded. He paid $284,000 for a home that sold for $525,000 in 2005.
"It's the time to buy," he said. "These homes were a bit out of reach a couple of years ago. Now I don't even need roommates to help pay the mortgage."
You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.
Sunday, February 15, 2009
Working With Realtors
In today's real estate climate, a short sale is becoming more common, though no less time consuming and challenging then it ever was. Banks and mortgage lenders scrutinize short sales because they stand to lose some of their investment, as does the homeowner. I am writing this article to illustrate that a short sale can actually prevent foreclosure, if it is done with enough expertise and foresight. A short sale may actually preserve a person's credit rating and help them to exit from a property they can no longer afford.
Options to Foreclosure: Short Sales or Property Management?
In today's real estate climate, a short sale is becoming more common, though no less time consuming and challenging then it ever was.
February 15, 2009 ( PowerHomeBiz ) - Williamsburg, VA - In today's real estate climate, a short sale is becoming more common, though no less time consuming and challenging then it ever was. Banks and mortgage lenders scrutinize short sales because they stand to lose some of their investment, as does the homeowner. I am writing this article to illustrate that a short sale can actually prevent foreclosure, if it is done with enough expertise and foresight. A short sale may actually preserve a person's credit rating and help them to exit from a property they can no longer afford.
If the short sale is not likely to be approved by the lender, another possibility is turning the home, condo or townhouse over to a property rental manager. It is better to show a rental income on the property rather than a loss. There's no reason to report a loss due to lack of affordability when the home is rentable.
Find an Experienced and Compassionate REALTOR for a Short Sale?
In my (Ron Smith) experience a lot of REALTORS do not complete the short package properly.
When the lender sees a package that is out of order or missing information, it goes right to the bottom of the pile. That pile may contain 30-45 packages that the loss mitigator has to inspect before he can even pass it up to the people who really have to approve it. Like the true investor behind the mortgage.
If the homeowner opts for a short sale, it's a good idea to select a qualified REALTOR with expertise in the area. Other characteristics a REALTOR should have are compassion and patience. The person losing their home is probably not in the best state of mind, so an understanding REALTOR is helpful. Since lenders often take three to four months to decide upon short sales, patience is a much needed attribute as well.
Finding the Right Mortgage Broker for a Short Sale
In addition to meeting the requirements of the lender, the homeowner must also sometimes negotiate a second mortgage with another lender. In this case, the first mortgage company must work with the second company to forgive the debt.
Although most mortgage companies do have a short sale department, it is often a challenge to find it because employees are sometimes unaware it even exists. The seller must either be persistent without being too aggressive or give a REALTOR permission to work with the lender. Tapping into the appropriate department is sometimes a challenge. The seller must grant the REALTOR permission and give him or her the loan number first.
Inspection of the Short Sale
When a buyer purchases a short sale property it is 'as is.' Home buyers who are wanting more information can request an inspection, for informational purposes only. The seller is not required to fix anything that is broken, and the buyer needs to be aware of this. An inspection can be performed prior to an offer with the permission of the listing agent. The buyer may back out of the sale at this point if there are repair issues revealed in the inspection.
However, the buyer cannot make an offer and then back out after the home inspection. So the time to complete an inspection on a short sale is before making an offer. Likewise, on short sales where homeowners association documents exist, it is best for the buyer to review the rules and regulations before the offer is made, in case there are objectionable terms.
What are the Necessary Documents for a Short Sale?
Lenders will only consider a short sale if the seller is behind two or three payments. There are some primary documents required by the lender for short sales. These include a hardship letter and financials. Sellers should be prepared to provide other information as requested, since many lenders have different rules with short sales on properties.
How Long Does the Home Buyer or Seller Have to Wait for a Short Sale to Complete?
The process of short sale on a property often takes about four months. First the REALTOR must contact the lender(s) and begin the process. Then he or she must have all offers for short sale submitted and reviewed by the lender(s) – which may take from 60-120 days. The lender(s) may reject all offers, or counter with others. The outcome could solidify a sale or begin the process all over again.
Some Final Thoughts on Short Sales
Whether the REALTOR is a buying or listing agent, he or she must still have empathy for the person who is selling. This is often a highly emotional time for the seller. They may be upset. Perhaps they do not want to move from their dream home. A REALTOR who has empathy will have more success in navigating the difficult waters of short sales.
==========
Thank you Elaine VonCannon for sharing this with us.
Elaine VonCannon is an award winning REALTOR with RE/Max Capital in Williamsburg, Virginia. She specializes in retirement and relocation in the Williamsburg, South Eastern Virginia area and in Virginia Estate properties
Options to Foreclosure: Short Sales or Property Management?
In today's real estate climate, a short sale is becoming more common, though no less time consuming and challenging then it ever was.
February 15, 2009 ( PowerHomeBiz ) - Williamsburg, VA - In today's real estate climate, a short sale is becoming more common, though no less time consuming and challenging then it ever was. Banks and mortgage lenders scrutinize short sales because they stand to lose some of their investment, as does the homeowner. I am writing this article to illustrate that a short sale can actually prevent foreclosure, if it is done with enough expertise and foresight. A short sale may actually preserve a person's credit rating and help them to exit from a property they can no longer afford.
If the short sale is not likely to be approved by the lender, another possibility is turning the home, condo or townhouse over to a property rental manager. It is better to show a rental income on the property rather than a loss. There's no reason to report a loss due to lack of affordability when the home is rentable.
Find an Experienced and Compassionate REALTOR for a Short Sale?
In my (Ron Smith) experience a lot of REALTORS do not complete the short package properly.
When the lender sees a package that is out of order or missing information, it goes right to the bottom of the pile. That pile may contain 30-45 packages that the loss mitigator has to inspect before he can even pass it up to the people who really have to approve it. Like the true investor behind the mortgage.
If the homeowner opts for a short sale, it's a good idea to select a qualified REALTOR with expertise in the area. Other characteristics a REALTOR should have are compassion and patience. The person losing their home is probably not in the best state of mind, so an understanding REALTOR is helpful. Since lenders often take three to four months to decide upon short sales, patience is a much needed attribute as well.
Finding the Right Mortgage Broker for a Short Sale
In addition to meeting the requirements of the lender, the homeowner must also sometimes negotiate a second mortgage with another lender. In this case, the first mortgage company must work with the second company to forgive the debt.
Although most mortgage companies do have a short sale department, it is often a challenge to find it because employees are sometimes unaware it even exists. The seller must either be persistent without being too aggressive or give a REALTOR permission to work with the lender. Tapping into the appropriate department is sometimes a challenge. The seller must grant the REALTOR permission and give him or her the loan number first.
Inspection of the Short Sale
When a buyer purchases a short sale property it is 'as is.' Home buyers who are wanting more information can request an inspection, for informational purposes only. The seller is not required to fix anything that is broken, and the buyer needs to be aware of this. An inspection can be performed prior to an offer with the permission of the listing agent. The buyer may back out of the sale at this point if there are repair issues revealed in the inspection.
However, the buyer cannot make an offer and then back out after the home inspection. So the time to complete an inspection on a short sale is before making an offer. Likewise, on short sales where homeowners association documents exist, it is best for the buyer to review the rules and regulations before the offer is made, in case there are objectionable terms.
What are the Necessary Documents for a Short Sale?
Lenders will only consider a short sale if the seller is behind two or three payments. There are some primary documents required by the lender for short sales. These include a hardship letter and financials. Sellers should be prepared to provide other information as requested, since many lenders have different rules with short sales on properties.
How Long Does the Home Buyer or Seller Have to Wait for a Short Sale to Complete?
The process of short sale on a property often takes about four months. First the REALTOR must contact the lender(s) and begin the process. Then he or she must have all offers for short sale submitted and reviewed by the lender(s) – which may take from 60-120 days. The lender(s) may reject all offers, or counter with others. The outcome could solidify a sale or begin the process all over again.
Some Final Thoughts on Short Sales
Whether the REALTOR is a buying or listing agent, he or she must still have empathy for the person who is selling. This is often a highly emotional time for the seller. They may be upset. Perhaps they do not want to move from their dream home. A REALTOR who has empathy will have more success in navigating the difficult waters of short sales.
==========
Thank you Elaine VonCannon for sharing this with us.
Elaine VonCannon is an award winning REALTOR with RE/Max Capital in Williamsburg, Virginia. She specializes in retirement and relocation in the Williamsburg, South Eastern Virginia area and in Virginia Estate properties
Here's a Glossary of Terms That All Homeowners Should Know
Balloon Mortgage
A mortgage that has level monthly payments that will fully amortize it over a stated term, but which provides for a lump-sum payment to be due at the end of an earlier specified term.
Bankruptcy
A proceeding in a federal court in which a debtor, who owes more than his or her assets, can discharge personal liability for his or her debts. This affects the borrower's personal liability for a mortgage debt but not the lien of the mortgage.
Biweekly Mortgage
A mortgage with payments due every two weeks, totaling 26 payments a year.
Borrower
A person (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.
Break-Even Point
The point at which total income is equal to total expenses.
Bridge Financing
A loan spanning the gap between the termination of one loan (generally short-term) and the start of another (generally permanent long-term) loan. Also referred to as gap financing.
Bridge Loan
A form of second deed of trust or mortgage that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.
Buydown
Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.
A mortgage that has level monthly payments that will fully amortize it over a stated term, but which provides for a lump-sum payment to be due at the end of an earlier specified term.
Bankruptcy
A proceeding in a federal court in which a debtor, who owes more than his or her assets, can discharge personal liability for his or her debts. This affects the borrower's personal liability for a mortgage debt but not the lien of the mortgage.
Biweekly Mortgage
A mortgage with payments due every two weeks, totaling 26 payments a year.
Borrower
A person (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.
Break-Even Point
The point at which total income is equal to total expenses.
Bridge Financing
A loan spanning the gap between the termination of one loan (generally short-term) and the start of another (generally permanent long-term) loan. Also referred to as gap financing.
Bridge Loan
A form of second deed of trust or mortgage that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.
Buydown
Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.
Investor Sues to Block Mortgage Modifications
By: Tom Vanderwell, Straight Talk About Mortgages
The battle over the mass modifications of troubled mortgages has begun in earnest. On Dec. 1, William Frey, a private investor in mortgage-backed securities, filed a lawsuit in New York State Supreme Court alleging that the proposed modification of some 400,000 home loans originally underwritten by the defunct lender Countrywide Financial is illegal.
At first glance, you’re probably thinking what I was (well, maybe not…) but seriously, why would some mean hearted investor want to prevent Bank of America from helping 400,000 home owners stay in their homes?
Let me attempt to explain:
Countrywide wrote the loans and sold them on the secondary market.
When they sold them, they didn’t sell them in 1 piece, they sold sections (called tranches) to a multitude of different investors and investment companies. It’s actually possible that parts of one mortgage end up being owned by 30 different “parties.”
The parties who bought these loans bought them as contracts that had a prepayment risk but didn’t buy them with a modification risk.
When a loan gets modified, it changes that contract which inherently changes the value of the investment.
The investors who are suing to stop it are saying that if you start changing the contracts, you are going to effectively ruin the secondary mortgage market because suddenly the value of the loans that are sold becomes an unknown.
If the secondary mortgage market dies, then the housing market dies. It’s just that simple, without mortgage money, the party is over.
Are the investors saying that the loans shouldn’t be modified? No they aren’t. What they are saying is, “I didn’t buy this investment with the thinking that it could be modified going forward.” So if you, Mr. B of A, want to change the terms, that’s fine, buy it back and change the terms.
The investors are, it seems to me, hoping for one of two results:
That Bank of America will buy the loans back (with our help of course).
That they take their chances with foreclosures. Given the report that the National Association of Realtors issued earlier on Mortgage Modification Defaul Rates of 50%, that’s not a compelling case for loan modifications.
So are the mean, evil heartless investors really that bad? Nope, they made a contract with Bank of America and they are saying that there is something bigger at stake than modifying a “few” loans.
The battle over the mass modifications of troubled mortgages has begun in earnest. On Dec. 1, William Frey, a private investor in mortgage-backed securities, filed a lawsuit in New York State Supreme Court alleging that the proposed modification of some 400,000 home loans originally underwritten by the defunct lender Countrywide Financial is illegal.
At first glance, you’re probably thinking what I was (well, maybe not…) but seriously, why would some mean hearted investor want to prevent Bank of America from helping 400,000 home owners stay in their homes?
Let me attempt to explain:
Countrywide wrote the loans and sold them on the secondary market.
When they sold them, they didn’t sell them in 1 piece, they sold sections (called tranches) to a multitude of different investors and investment companies. It’s actually possible that parts of one mortgage end up being owned by 30 different “parties.”
The parties who bought these loans bought them as contracts that had a prepayment risk but didn’t buy them with a modification risk.
When a loan gets modified, it changes that contract which inherently changes the value of the investment.
The investors who are suing to stop it are saying that if you start changing the contracts, you are going to effectively ruin the secondary mortgage market because suddenly the value of the loans that are sold becomes an unknown.
If the secondary mortgage market dies, then the housing market dies. It’s just that simple, without mortgage money, the party is over.
Are the investors saying that the loans shouldn’t be modified? No they aren’t. What they are saying is, “I didn’t buy this investment with the thinking that it could be modified going forward.” So if you, Mr. B of A, want to change the terms, that’s fine, buy it back and change the terms.
The investors are, it seems to me, hoping for one of two results:
That Bank of America will buy the loans back (with our help of course).
That they take their chances with foreclosures. Given the report that the National Association of Realtors issued earlier on Mortgage Modification Defaul Rates of 50%, that’s not a compelling case for loan modifications.
So are the mean, evil heartless investors really that bad? Nope, they made a contract with Bank of America and they are saying that there is something bigger at stake than modifying a “few” loans.
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First time Home Buyers: Can’t qualify for your 1st mortgage?
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