Sad Loan Modification Story

Sad Loan Modification Story

In this Mish's Global Economic Trend Analysis article, "Wells Fargo Madness" a Reader Reply to Fear and Shame Tactics, a reader replied to an article on that website (Government and Lender Policies of Fear and Shame Help Keep Homeowners Debt Slaves which I referenced in my blog post Why Lenders Push Homeowners Around) and told a very sad, but sobering story regarding his attempt to obtain a loan modification from Wells Fargo.  Rather than trying to paraphrase the reply/comment, I have posted almost the complete reply/comment below:

"I bought a house back in 2004, having moved halfway across the country for a new job. It was a house I could comfortably afford - I made a little over $70,000 as a senior manager for a newspaper, and my mortgage was a little under $900 a month (including taxes and insurance), fixed at 5.25% for 30 years with Wells Fargo. In spite of the pressure put on me by a broker when I was buying, I avoided the no money down variable option because I wanted to do what I thought was the responsible thing to lock in my payments at a decent rate I knew I could afford and avoid the reset lotto. In April of 2008, I was notified that the job I had moved across the country for was set to be eliminated, along with the entire staff of my department. The company I worked for was highly levered in an environment where revenues were shrinking, and 'consolidations' were being made across the company. The day I found out that I was going to be out of work, I called Wells Fargo to see if it would be possible to make some alternate payment arrangements until I found work, and was told precisely what the article you reference noted - that they couldn't even discuss the matter with me until I was 30 days in arrears. I was mortified, knowing that being 30 days in arrears would leave me with the dreaded 'mortgage late' on what had been a pristine 800 credit score. I had been prudent and saved a fair sum of money, so I decided to try and keep the plates spinning while I looked for work. I applied myself to the job hunt, but with nearly 50 positions eliminate from my company and a few hundred at other domestic newspapers who shared my area of specialty, it was a tough task finding work. Then in August, Gannett, the biggest newspaper company in the world, announced that they would be laying off 1000 workers, and my sources inside Gannett told me that they were going the 'consolidation' route, meaning that in the course of 3 months nearly a third of the total positions in my field had gone *poof*. My prospects for finding work in the industry where I had experience had just gone from tough to Quixotic. I again called Wells Fargo to see if there was anything they could help me with that didn't involve damaging my credit - I still had a sizable amount of savings to negotiate with - but the answer was the same: 30 days late or no discussion. I decided I'd have to take them up on the offer. When 30 days had elapsed, I contacted them once again, only to now be told that they couldn't work out any arrangements until I had found work. I was angry, as one might imagine. I decided that they had received the last payment they were going to receive from me. Fourteen months later, I have kept the vow. I'm not proud of walking away from my 'responsibility', but in light of the situation - nearly 18 months without finding work - it seems that it was the best thing that could have happened. If I had kept paying all along, I'd have depleted a good deal of my savings, and I'd still be facing losing the unemployment benefits that are keeping the other bills paid. As it stands, I've still got that nest egg to see my family through the rough days that lie ahead. I've been to the housing counselors the state has set up, and the best they were able to do for me was that I could pay off the back payments, penalties and interest, and resume making payments. My house is set to be sold at auction next week, and due to the rules in the state, the minimum price will be well in excess of what I suppose the market price would be. I expect that the bank will be the buyer by default. If my experience is representative, walking away might be the best option. From Wells Fargo's perspective, this was an avoidable situation. I called them when I found out about my joblessness, and I did everything I could to avoid a default. All I wanted was some recognition that I was willing to work with them if they would work with me - maybe only paying interest until I was able to find something. However, once I felt double-crossed, having been told to let it go into arrears so that they could work with me, and then to be told they still couldn't work with me, I did what I thought was prudent. I decided to see how long I could live rent free. As of today, it's been almost 14 months. Assuming that the house sells next week and I get an order to vacate the next, I'll be here through the end of January (it takes a minimum of 60 days to affect an eviction here). More likely, I won't get the order to vacate until the bank sells my house as part of a package foreclosure deal for about 20 cents on the dollar. I might get to live here rent-free for a good spell longer. I could have, and probably would have, paid them nearly 50% of the house's value as a cash settlement 14 months ago if they'd been willing to have a conversation. I've come to the realization that I'm not going to find work in the field to which I'm accustomed and I'm back in school to get another degree. I started in August after the Gannett news came out, as much to avoid a long gap in my resume without an explanation as anything else. I've been doing programming and database work since I minored in computer sciences 15 years ago, but I figured I'd legitimize my skills with a degree - since I have the down time. I've got 8 classes to go and a 4.0 GPA. The big question is: will I find work when I get done this spring?"

Wow, that comment is fantastic, and sad all in one. What really angers me is that the government bank bailouts (TARP) combined with the FASB accounting changes that allow banks to count virtually worthless assets such as 2nd mortgage loans collateralized by homes that are no longer worth enough to even cover the 1st mortgage loans let alone the 2nd mortgage loans have allowed mortgage lenders to take this callous approach toward homeowners and reject the lone cure to this financial mess - voluntary mortgage loan principal reductions. In short, the US taxpayer is helping banks artificially have more leverage in their dealings with distressed homeowners and allowing the banks avoid doing what is necessary to solve this financial crisis. Of course, taxpayers will pay again when these lenders ultimately fail after billions and billions more are wasted. The end result will be more and more foreclosures and short sales.

If you are a Middle TN homeowner, property owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in and around Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN).  If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Why Lenders Push Homeowners Around

Why Lenders Push Homeowners Around

According to this Mish's Global Economic Trend Analysis article, Government and Lender Policies of Fear and Shame Help Keep Homeowners Debt Slaves, lenders offer loan modifications to financially distressed homeowners only if doing so financially benefits the lender (i.e. it as a business decision), while homeowners view walking away from their homes as a moral decision. The article concludes that the result of these differing view points is that homeowners are at a distinct disadvantage compared to mortgage lenders when trying to make sound financial decisions regarding their homes. Without going into all the details described in the article (if you would like all the details, I highly recommend that you read it), I would like to mention the following points made in the article.

• Homeowners heavily factor in personal responsibility and morality into their decision to keep paying their mortgages even though they are financially struggling and/or may owe more than their homes are worth (although this view is changing somewhat - see my blog post Underwater Homeowners Walking Away From Their Homes).
• Lenders are more responsible than homeowners for the real estate boom and bust due to lenders' superior real estate market knowledge including appraisals to determine property/collateral values, complex default models, deciding to require lower down payments even though the lenders knew that higher loan to value mortgage loans had higher default rates, etc.
• Due to lenders being more than 50% responsible for the housing bust, lenders should be willing to voluntarily write off some of the debt in order to reduce the amount that homeowners are underwater (i.e. negative equity), but they are not doing this since when lenders are trying to decide on how to best handle struggling homeowners, they do not factor in "responsibility" for the housing market crash.  Instead, lenders strictly desire an outcome that will maximize profits or minimize losses.
• Due to the difference in the way that homeowners and lenders view mortgage loan default (personal responsibility/morality versus business decision), mortgage lenders are able to manipulate homeowners to do things that are to the financial benefit of mortgage lenders, but to the financial detriment of homeowners.

The article states "First, lenders know that borrowers with high credit scores are unlikely to default even at high levels of negative equity. To modify loans for these homeowners would be to throw money away – and to encourage more homeowners to ask for modifications. Second, a significant number of homeowners who temporarily default on their mortgages "self-cure" without any help from their lender – though self cure rates have dropped precipitously in the last two years. Again, to modify the loans of individuals who would otherwise self cure would be to throw away money. Third, homeowners with poor credit, or who end up in arrears because of “triggering events” such as unemployment, divorce, or other financially devastating circumstances are likely to default on the modified loan as well. To modify loans for these individuals is to waste time and risk housing prices falling further before the lender eventually has to foreclosure and sell the property anyway. Given these economic incentives for the lender, a seriously underwater homeowner with good credit and solid mortgage payment history who responsibly calls his lender to work out a loan modification is likely to be told by his lender that it will not discuss a loan modification until the homeowner is 30 days or more delinquent on his mortgage payment. The lender is making a bet (and a good one) that the homeowner values his credit score too much to miss a payment and will just give up the idea of a loan modification. However, if the homeowner does what the lender suggests, misses a payment, and calls back to discuss a loan modification in 30 days, the homeowner is likely to be told to call back when he is 90 days delinquent. In the meantime, the lender will send the borrower a series of strongly-worded notices reminding him of his moral obligation to pay and threatening legal action, including foreclosure and a deficiency judgment, if the homeowner does not bring his mortgage payments current. The lender is again making a bet (and again a good one) that the homeowner will be shamed or frightened into paying their mortgage. If the homeowner calls the lender’s bluff and calls back when he is 90 days delinquent, there is a good possibility that he will be told that his credit score is now so low that he does not qualify for a loan modification. Most lenders will, in other words, take full advantage of the asymmetry of norms between lender and homeowner and will use the threat of damaging the borrower’s credit score to bring the homeowner into compliance. Additionally, many lenders will only bargain when the threat of damaging the homeowner’s credit has lost its force and it becomes clear to the lender that foreclosure is imminent absent some accommodation. On a fundamental level, the asymmetry of moral norms for borrowers and market norms for lenders gives lenders an unfair advantage in negotiations related to the enforcement of contractual rights and obligations."

The information above is why:

• Lenders take as long as they want to respond to homeowner loan modification requests.
• Lenders frequently reject loan modification requests.
• Financially struggling homeowners can frequently stay in their homes for many months despite not paying their mortgage loans (the lenders are frequently deciding to do nothing until foreclosure is absolutely imminent).
• Homeowners do sometimes walk away despite the personal responsibility - they get completely frustrated with the games lenders play.
• Walking away needs to be a viable option (albeit not the best one) for homeowners.
• Short sales and foreclosures will continue to increase.

If you are a Middle TN homeowner, property owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in and around Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN).  If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.