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[Cancel 2016.2]

Just a thought... would like your opinions....

What if mortgage companies/banks/Fannie/Freddie....

were to modify mortgages on the properties to existing valuations with the caveat that if the property is sold for more than the modification they receive any amount between the modified amount and the current loan value plus 15%?

Ex: Owner A buys has a home for $350k with a $300k mortagage that is now worth $250k. Lender B refi's the deal for $250k.

In three years the housing market gets better and Owner A sells the home for $350k. The loan for $250k is repaid, Lender A gets additional $95k, owner gets remaining $5k.

Or

If Owner A sells home for $270k.... Lender gets $250k for loan and additional $20k. Owner A walks away without a blemish on credit.

Would this make sense?

 

[Cancel 2016.2]

what are downside potentials of doing the above?

 

[Immanuel]

I'm trying to figure out why the owner would sign away all equity. Is this in lieu of interest?

Or in your second example, why would the bank risk losing money. If say instead of selling the home for $270k, the owner sold it for $230k. The bank would be out 20k right? What incentive would the owner have to make sure the home sold for more than the mortgage?

I'm not fully understanding your scenario.

Immie

 

[Cancel 2016.2]

I'm trying to figure out why the owner would sign away all equity. Is this in lieu of interest?

Or in your second example, why would the bank risk losing money. If say instead of selling the home for $270k, the owner sold it for $230k. The bank would be out 20k right? What incentive would the owner have to make sure the home sold for more than the mortgage?

I'm not fully understanding your scenario.

Immie

They would not sign away all equity. The 15% premium is designed to essentially make up for the lender taking the risk of refinancing and not recouping the original loan value. If the owner were to sell ten years from now for $400k... the lender would still only receive the $345.

The owner benefits in having his/her loan reduced during tough economic times and from the ability to now sell the home for $250 without affecting their credit score. In exchange for lower payments now and the ability to sell at current market prices, they give up some of the potential equity gains in the future (should they occur)

Right now in that example... the owner has already lost their $50k equity PLUS is underwater by another $50k. This gets them back to even and drops their mortgage payment to make it more affordable. So while it may appear the owner is giving up equity, in reality it is equity they have already lost.

 

[DamnYankee]

what are downside potentials of doing the above?

The downside is that those of us who played it smart and moved to housing markets where the economy didn't boom, then bust, get to pay for the idiots who bought in the boom markets during the boom cycle.

 

[Cancel 2016.2]

The downside is that those of us who played it smart and moved to housing markets where the economy didn't boom, then bust, get to pay for the idiots who bought in the boom markets during the boom cycle.

actually in this scenario, the design is to prevent people who haven't been foreclosed upon from foreclosure. The mortgage holders would be taking a hit... not the tax payers. In exchange for taking a hit, the mortgage companies would benefit should the housing market bring the homes value back to the original loan value.

I proposed this, because like you I dont want to pay for others that bought more home than they could afford. Nor do I want to see this cycle continue. By giving up potential equity, the homeowners would also be giving something up... so those that bought more home than they could afford would not benefit.

 

[Topspin]

sounds good, another creative way for finance guys to fleece the retarded buyers.

 

[DamnYankee]

actually in this scenario, the design is to prevent people who haven't been foreclosed upon from foreclosure. The mortgage holders would be taking a hit... not the tax payers. In exchange for taking a hit, the mortgage companies would benefit should the housing market bring the homes value back to the original loan value.

I proposed this, because like you I dont want to pay for others that bought more home than they could afford. Nor do I want to see this cycle continue. By giving up potential equity, the homeowners would also be giving something up... so those that bought more home than they could afford would not benefit.

Since the mortgage companies would be taking a hit, therefore will have to raise rates across the board, which includes me. Why not just let the free market do its thing and punish the stupid, and award the smart buyers? Why shouldn't I reap the fruits of my good decisions?

 

[Cancel 2016.2]

Since the mortgage companies would be taking a hit, therefore will have to raise rates across the board, which includes me. Why not just let the free market do its thing and punish the stupid, and award the smart buyers? Why shouldn't I reap the fruits of my good decisions?

1) If you are paying your mortgage on time then this does not effect negatively. In fact it will help you and I see a stabilization of the housing market. If we do nothing to stem the tide of the foreclosures, then housing prices around us will continue to deteriorate as homes are sold for less than what they are currently pricing at.

2) Rather than just saying... I'm paying my mortgage on time, why not highlight HOW you think this would negatively effect you. If you would, explain why it is you believe that they would have to raise rates? Mortgage companies BENEFIT from taking this hit if they can prevent a foreclosure.

 

[Cancel 2016.2]

sounds good, another creative way for finance guys to fleece the retarded buyers.

Great... another insightful comment... how about demonstrating how it is you think they get fleeced?

 

[DamnYankee]

1) If you are paying your mortgage on time then this does not effect negatively. In fact it will help you and I see a stabilization of the housing market. If we do nothing to stem the tide of the foreclosures, then housing prices around us will continue to deteriorate as homes are sold for less than what they are currently pricing at.

2) Rather than just saying... I'm paying my mortgage on time, why not highlight HOW you think this would negatively effect you. If you would, explain why it is you believe that they would have to raise rates? Mortgage companies BENEFIT from taking this hit if they can prevent a foreclosure.

The housing market is relatively stable where I chose to live. I could have chosen Boston, NY, LA, of Florida but I saw the bubble and steered clear. If the idiots who bought in those market bubbles don't take the hit, then it will be spread around, which again, includes me.

Again, I made intelligent decisions and others took high risks. Why should I have to pay for others idiocy? Why can't I simply enjoy the fruits of my good choices?

 

[Cancel 2016.2]

The housing market is relatively stable where I chose to live. I could have chosen Boston, NY, LA, of Florida but I saw the bubble and steered clear. If the idiots who bought in those market bubbles don't take the hit, then it will be spread around, which again, includes me.

Again, I made intelligent decisions and others took high risks. Why should I have to pay for others idiocy? Why can't I simply enjoy the fruits of my good choices?

Again, you are saying that the hit will be spread around. Again... I am asking to you demonstrate WHY you think that. Under the scenario I presented, if the housing market does not rebound, the mortgage company takes a hit (but not as bad as the one they would take under foreclosure). If the housing market recovers, then it is the individual who takes the hit in terms of lost equity.

Neither of those scenarios means it gets spread around to you or me or anyone else that is paying on time.

The whole purpose of this proposal is to prevent that from happening.

 

[DamnYankee]

Again, you are saying that the hit will be spread around. Again... I am asking to you demonstrate WHY you think that. Under the scenario I presented, if the housing market does not rebound, the mortgage company takes a hit (but not as bad as the one they would take under foreclosure). If the housing market recovers, then it is the individual who takes the hit in terms of lost equity.

Neither of those scenarios means it gets spread around to you or me or anyone else that is paying on time.

The whole purpose of this proposal is to prevent that from happening.

You admit that the mortgage company will take a hit, and when they do, their other customers will have to make up the difference, or else the company goes bankrupt.

Perhaps you can demonstrate how the company would take less of a hit relative to foreclosure. Under foreclosure, the company assumes all the equity in the home, which could be substantial. In fact it could be damn profitable.

 

[Cancel 2016.2]

You admit that the mortgage company will take a hit, and when they do, their other customers will have to make up the difference, or else the company goes bankrupt.

Perhaps you can demonstrate how the company would take less of a hit relative to foreclosure. Under foreclosure, the company assumes all the equity in the home, which could be substantial. In fact it could be damn profitable.

Seriously are you retarded? Its like arguing with Dixie.

Do try to follow along this time.....

If you have a $300k home that's current market value is $250k... there is NO equity in the home. NONE. That is why they call those mortgages under water. You are drowning in the debt. If there was substantial equity in the home, the individual would be able to refi that debt or simply sell the home. They would not be up for foreclosure.

If the individual defaults on that debt... what is the mortgage company left with? A home that is valued at $250k and a hit of $50k. Then the mortgage company has to try to sell the asset in a declining environment. Maybe they get lucky and are able to sell for the $250. In which case they still take a $50k hit.

But while they are selling, they have no cash flow from the property. If this happens on a wide scale... they are hosed. Bottom line... in the BEST case scenario they take that same $50k hit that they would have under my proposal.

 

[DamnYankee]

Seriously are you retarded? Its like arguing with Dixie.

Do try to follow along this time.....

If you have a $300k home that's current market value is $250k... there is NO equity in the home. NONE. That is why they call those mortgages under water. You are drowning in the debt. If there was substantial equity in the home, the individual would be able to refi that debt or simply sell the home. They would not be up for foreclosure.
.....

There is no reason for you to get belligerent.

This home in your example may have $299k equity, and the owner can't make the last payment. The bank then forecloses, sells the house on the open market for $250k, pays the Realtor (7% or $17.5k), takes 15% of the loan value ($45k) for its trouble, and gives the deadbeat what's left over.

The $45k keeps the bank solvent and my loan, or future loan, isn't affected.

 

[Immanuel]

Seriously are you retarded? Its like arguing with Dixie.

Do try to follow along this time.....

If you have a $300k home that's current market value is $250k... there is NO equity in the home. NONE. That is why they call those mortgages under water. You are drowning in the debt. If there was substantial equity in the home, the individual would be able to refi that debt or simply sell the home. They would not be up for foreclosure.

If the individual defaults on that debt... what is the mortgage company left with? A home that is valued at $250k and a hit of $50k. Then the mortgage company has to try to sell the asset in a declining environment. Maybe they get lucky and are able to sell for the $250. In which case they still take a $50k hit.

But while they are selling, they have no cash flow from the property. If this happens on a wide scale... they are hosed. Bottom line... in the BEST case scenario they take that same $50k hit that they would have under my proposal.

I'm sorry SF, call me retarded if you want but this really doesn't make sense. In your example of the OP:

Ex: Owner A buys has a home for $350k with a $300k mortagage that is now worth $250k. Lender B refi's the deal for $250k.

In three years the housing market gets better and Owner A sells the home for $350k. The loan for $250k is repaid, Lender A gets additional $95k, owner gets remaining $5k.

Or

If Owner A sells home for $270k.... Lender gets $250k for loan and additional $20k. Owner A walks away without a blemish on credit.

you show lender B refinancing for the buyer at 50k below the value of the mortgage (approx we know there would have been payments in there) but for shits and grins lets go with your figure. And let's give the lenders names for clarity. Lender A = Bank of America, Lender B = Wells Fargo.

The homeowner wants to refinance and under your scenario is short $50k. If the homeowner uses all the funds from the second mortgage (Wells Fargo) to pay down the Bank of America Mortgage the homeowner would still owe $300k (250 to Wells Fargo and 50 to B of A). In fact, both banks are going to expect monthly payments and B of A will still want the original monthly payments unless renegotiated.

The way things work today, if the home sell in the future for $350k, the proceeds would be split like this; B of A 50k, Wells Fargo 250k and owner 50k. If the home sells for $270k then B of A gets it's 50, Wells Fargo gets 220 and the seller has to make up the difference or be in default on the Wells Fargo Loan and suffer those consequences.

Under your scenario, if the home sells for 350, B of A get 95k, Wells Fargo gets 250k and the homeowner gets 5k. If the home sell for $270k based on your example, Bank of America would be losing $50k, Wells Fargo would get its 250k and basically the homeowner gets an additional 50k, the 20k from the sale and the 30k in written off loans. What incentive would Bank of America get in return for this agreement? Even if Bank of America got the 20k difference between the sale of the property and Wells Fargo's loan, B of A loses and the homeowner clears an extra 30k in written off loans.

Why on earth would the homeowner want to give up so much potential equity (45k in your example) in the future for nothing in return or why would Bank of America be willing to give up 50k should the home sell short?

I'm lost somewhere.

I doubt B of A would care to gamble its 50k that the homeowner will sell for a profit that he/she will not share significantly in. It is much easier to sell a 350k home for 270k than it is for 350k so the homeowner's incentive is to get out. Even easier would be to sell the home for 250k pay back Wells Fargo and get the 50k benefit of written off loans.

Under your scenario, I see someone losing big time. I just don't see banks snapping at your idea as they won't be willing to gamble on a future profit nor do I see homeowners willing to give up their equity like that.

Saving a foreclosure proceeding? I think the risks are too great for both parties.

Something just doesn't make sense to me. Maybe I'm not understanding your scenario, but I am at least trying.

Immie

 

[Cancel 2016.2]

I'm sorry SF, call me retarded if you want but this really doesn't make sense. In your example of the OP:



you show lender B refinancing for the buyer at 50k below the value of the mortgage (approx we know there would have been payments in there) but for shits and grins lets go with your figure. And let's give the lenders names for clarity. Lender A = Bank of America, Lender B = Wells Fargo.

The homeowner wants to refinance and under your scenario is short $50k. If the homeowner uses all the funds from the second mortgage (Wells Fargo) to pay down the Bank of America Mortgage the homeowner would still owe $300k (250 to Wells Fargo and 50 to B of A). In fact, both banks are going to expect monthly payments and B of A will still want the original monthly payments unless renegotiated.

The way things work today, if the home sell in the future for $350k, the proceeds would be split like this; B of A 50k, Wells Fargo 250k and owner 50k. If the home sells for $270k then B of A gets it's 50, Wells Fargo gets 220 and the seller has to make up the difference or be in default on the Wells Fargo Loan and suffer those consequences.

Under your scenario, if the home sells for 350, B of A get 95k, Wells Fargo gets 250k and the homeowner gets 5k. If the home sell for $270k based on your example, Bank of America would be losing $50k, Wells Fargo would get its 250k and basically the homeowner gets an additional 50k, the 20k from the sale and the 30k in written off loans. What incentive would Bank of America get in return for this agreement? Even if Bank of America got the 20k difference between the sale of the property and Wells Fargo's loan, B of A loses and the homeowner clears an extra 30k in written off loans.

Why on earth would the homeowner want to give up so much potential equity (45k in your example) in the future for nothing in return or why would Bank of America be willing to give up 50k should the home sell short?

I'm lost somewhere.

I doubt B of A would care to gamble its 50k that the homeowner will sell for a profit that he/she will not share significantly in. It is much easier to sell a 350k home for 270k than it is for 350k so the homeowner's incentive is to get out. Even easier would be to sell the home for 250k pay back Wells Fargo and get the 50k benefit of written off loans.

Under your scenario, I see someone losing big time. I just don't see banks snapping at your idea as they won't be willing to gamble on a future profit nor do I see homeowners willing to give up their equity like that.

Saving a foreclosure proceeding? I think the risks are too great for both parties.

Something just doesn't make sense to me. Maybe I'm not understanding your scenario, but I am at least trying.

Immie

Um... you misread...there is only ONE lender and ONE borrower in the example I posted. I did not talk about taking out a second mortgage.

We'll give them names to avoid confusion... Dixie bought a home for $350k with a mortgage of $300k. The home is now worth $250k. Dixie's mortgage company is Countrywide. Now Dixie cannot afford his payment and may fall into foreclosure. Neither Countrywide nor Dixie benefit from this scenario.

My proposal is that Countrywide refi Dixie's loan for the $250k that the home is now worth. Dixies mortgage payment goes down to a level that he can afford. Countrywide takes the $50k write off.

So there is no second loan, Dixie doesn't still owe $300, he owes $250.

Further, my example states that if down the road Dixie sells the home for more than the $250k, then Countrywide is able to recoup the $50k it wrote off during the refi. In addition, they are able to recoup a premium (I used 15%) for taking the risk and to make up for interest that would have applied to the $50k they wrote off.

In the situation I describe... the homeowner is not 'giving up their equity'. It is already gone. Their home value has deteriorated to put the mortgage under water.

In the situation... Countrywide is better off writing down the $50k than going through the foreclosure procedure in which they would then have to sell the home in a buyers market.

 

[Immanuel]

Um... you misread...there is only ONE lender and ONE borrower in the example I posted. I did not talk about taking out a second mortgage.

We'll give them names to avoid confusion... Dixie bought a home for $350k with a mortgage of $300k. The home is now worth $250k. Dixie's mortgage company is Countrywide. Now Dixie cannot afford his payment and may fall into foreclosure. Neither Countrywide nor Dixie benefit from this scenario.

My proposal is that Countrywide refi Dixie's loan for the $250k that the home is now worth. Dixies mortgage payment goes down to a level that he can afford. Countrywide takes the $50k write off.

So there is no second loan, Dixie doesn't still owe $300, he owes $250.

Further, my example states that if down the road Dixie sells the home for more than the $250k, then Countrywide is able to recoup the $50k it wrote off during the refi. In addition, they are able to recoup a premium (I used 15%) for taking the risk and to make up for interest that would have applied to the $50k they wrote off.

In the situation I describe... the homeowner is not 'giving up their equity'. It is already gone. Their home value has deteriorated to put the mortgage under water.

In the situation... Countrywide is better off writing down the $50k than going through the foreclosure procedure in which they would then have to sell the home in a buyers market.

I disagree.

And thank you for clarifying the issue. I was confused by your use of Lender A and Lender B.

It seems to me like it would be better for both parties to simply renegotiate the terms of the loan. Say the monthly payment is $2,500 and the homeowner can afford $1750. It would make more sense for both parties to spread out the terms of the mortgage and lower the interest rate rather than gamble on the future outcome. IMHO.

Immie

 

[Cancel7]

Again, you are saying that the hit will be spread around. Again... I am asking to you demonstrate WHY you think that. Under the scenario I presented, if the housing market does not rebound, the mortgage company takes a hit (but not as bad as the one they would take under foreclosure). If the housing market recovers, then it is the individual who takes the hit in terms of lost equity.

Neither of those scenarios means it gets spread around to you or me or anyone else that is paying on time.

The whole purpose of this proposal is to prevent that from happening.

Sometimes I feel sorry for you SF, because you actually seem to believe that these right wingnuts are rational. They aren't. Their entire being is motivated by one thing only: Nobody ever gave me nothun, and nobody better never give nobody else nothun neither.

It doesn't matter if it's not even really giving anyone anything. It's helpful. Nobody better never help nobody.

Don't you people on the right, who are not extremists, but somewhat rational, have any clue what you are dealing with here? And don't forget; this is the ideology which took over our country for eight years.

 

[Timshel]

Just a thought... would like your opinions....

What if mortgage companies/banks/Fannie/Freddie....

were to modify mortgages on the properties to existing valuations with the caveat that if the property is sold for more than the modification they receive any amount between the modified amount and the current loan value plus 15%?

Ex: Owner A buys has a home for $350k with a $300k mortagage that is now worth $250k. Lender B refi's the deal for $250k.

In three years the housing market gets better and Owner A sells the home for $350k. The loan for $250k is repaid, Lender A gets additional $95k, owner gets remaining $5k.

Or

If Owner A sells home for $270k.... Lender gets $250k for loan and additional $20k. Owner A walks away without a blemish on credit.

Would this make sense?

The owner loses 50K in the second scenario and 45K in the first. But there is a bigger problem.

You should modify the calculation to make selling more attractive. Your formula as you explained...

Lenders Take=Greater of Original Loan Amount+(Original Loan Amount*.15) or Sale Price or New Loan Amount

With your figures...

345k=300k+(300k*.15)

If you change the sale amount the homeowner becomes trapped. For instance, say the sale amount is 325k. This amount is still greater than the original loan and more than the modified loan, so lender gets original loan plus 15%. The lender would be glad to have a sale at this price, not the borrower.

The lender still gets 345K, ends up making $45K and the homeowner has to come up with $20K to cover the difference between the lender's take and the sale price.

The formula should be...
Lenders Take=Greater of Original Loan Amount+((Sale Price-Original Loan Amount)*.15) or Sale Price or New Loan Amount

You could play with the percentage now to make it more attractive for the lender, but increasing it will tend to discourage the homeowner from taking action that might benefit the lender.