Short Sale and Loan Modifications ---Worst Crap of All-Time

Discussion in 'Economics' started by forsalenyc, May 21, 2009.

  1. Let's look at the facts first. Short Sale success rate is less than 20%. That means more than 80% eventually goes to foreclosure. Basically more money wasted for already deprived homeowners.

    Loan Modifications. The worst of all time. This is not a solution, but it's a poison that will slow kill our economy and keep it ill for a very long long time. let's say you have a 30-yr fixed mortgage payment, and you decide to seek Loan Modifications. It'll cost you $3000 to $6000 for loan officer/attorney fees. Then you'll end up with a 40-yr loan of which first 5 years are interest only payments. Afterwards, you'll end up paying alot higher than current 30-yr fixed mortgage rate. This is a repeat of Option Arm or Alt-A dilemma we're about to face.

    Now, Option Arm........a smart ass program that allows homeowners to pay interest only for the first 5 years, then BAMM!!!! YOUR MORTGAGE PAYMENT GOES UP AS MUCH AS 2X!! Sure it worked fine when the housing market was hot. Now? it'll be worse than subprime mortgage crisis. let's take a look at complaint filed by California Attorney General:

    "The loan had an initial principal balance of $460,000, a teaser rate of 1% and a margin fo 2.9%

    a. $1,479.54 per month for the first year
    b. $1,590.51 per month for the second year
    c. $1,709.90 per month for the third year
    d. $1,838.04 per month for the fourth year
    e. $1,975.89 per month for the first nine months of the fifth year
    f. $3,747.83 for the remaining twenty-five years."

    And let's look at current status of California's Subprime and Option Arm schedule(according to FRB - as of March, 2009)

    Subprime loans active: $119 billion

    Alt-A loans active: $288 billion


    Total $407 billion

    Assuming that an average house in CA is $250,000.....we're looking at approximately 1.6 million households have either Option Arm or Subprime mortgages. if you look at the mortgage payments in the first five years(above, a-e) and compare it to the monthly payments in the remaining 25 years (f), As much as 90% of them will eventually fall into foreclosures.....heard of domino effect? how will our government prevent this? Unless they give Californeans free housing, there is no stop to this calamity. Our govt fucking know this......Right now, they are giving false impression to the people by buying up shitload of mortgage securites(including equities)....but all this will crumble and taxpayers will eat TARP/TALF shit.

    Bottomline......There is no solution stopping this catastrophe. The housing mrkt will get worst into 2010 and into 2011. And if our genius govt pursue loan modification as the solution(which I don't think they will), it'll just get worse and worse into 2012, 2013, etc etc.

    Dejavu Japan? Japan went thru this in the 70's when its housing boom crumbled and housing prices fell more than 80%. Eventually Japan's interest rate fell to 0(where it is today) and mortgage rates accordingly down near 2%.

    Our banks need to see this NOW and make payments more affordable. Borrowing at 0.25% and lending out at 5.25% will not and cannot save them.......ever heard of 'pigs get slaughtered?'. Eventually mortgage rates HAVE to fall, and faster it falls, the faster housing mkt stabilizes.

    But there are more negatives.........Japan was able to rise again due to their lending and had Nissan and Toyota. Fuck, we got GM and Chrysler....................................................................................................................................................................................................................

    I think we're doomed.
  2. Pascal


    That's why the fed is devaluing the dollar. The dollar index will be in the low 70's by the end of the year. We will see rampant inflation.
  3. MattF


    Short sales aren't a bad option if they're done right.

    The majority of realtors out there have no clue how to do them, or don't care to. They'll just take the listing instead for the small fee, thus leaving the homeowner still you have only one shot at it effectively.

    Homeowners are quite frankly too dumb to figure out or want to figure it out for themselves...i.e. they don't know how to effectively think and deal with their situation.

    Those who do it right are making an absolute killing right now discounting things dirt cheap, then re-selling for a nice profit, while helping the homeowner avoid what would be a foreclosure...the best win-win situation possible.

    Loan mods: few good firms are up and running and can do them right. I'll agree, the terms can still put a homeowner in trouble 5 years or so from now..but if they want to save their home that badly, well, let's put out something that can "help"

    Bottom line goes back to the original times: too many people got too much they ultimately can't afford whether it's through a single or 2nd, 3rd's, etc.

    They're a couple of paychecks away or a job loss away from total financial ruin.
  4. Shortsale: in theory, and if done right, Yes it's a nice option. In practice, it's waste of money for most homeowners.

    Loan Mods maybe ok if our economy and housing picks up in 5 years. but even if we don't fall farther south, and stabilize in L-shaped recovery(??), Loan Mods will bring trouble in later years. Loan mod will only delay things to come.

    From yesterday's Fed Minutes.....looks like our govt is at best hoping for housing to pick up with no futher evidences. (tired of hearing "Housing market maybe bottoming") Our projected GDP will likely be reduced. and overall, we're not looking too optimistic. Add in medicare getting completely drained in next 2-3 years and SS being wiped out by 2017.........I think we're looking at more troubled years for at least a decade.
  5. has anyone gone thru loan modifications recently? I'm just curious as to how much it costs and what kind of rates you get for the first 5 years.....
  6. jem


    Loan mod companies charge about 1200 to 4000 dollars. Lawyers charge about the same.

    Most non lawyers in California who are doing loan mods are violating the foreclosure consultant act.

    Most loan mods are temporary and small for the senior loan. Many times a homeowner can get the same result as a loan mod company or lawyer. (short of litigation.)

    The juniors loans do negotiate principle ( I have negotiated 1- to 20 cents on the dollar for multiple clients) if you can get some leverage on them. This is where I think it makes sense to hire an experienced attorney.

    Short sales do not cost the selllers money in CA as Realtors may not charge up front.

    However, since the tarp money came out the lenders are unlikely to release the loan deficiency without a tough fight.

    If you are considering a short sale make sure your Realtor has close 4 or 5 short sales since the TARP money came out. Also review the approvals to see if the release of deficiency is in writing. Do not be tricked - you need a release of Mortgage or Lien and a release from liability for the loan or note. (I am licensed to say this for CA and FL - check with an attorney in your own state.)
  7. Has the IRS still suspended the tax liability if you get part of your mortgage forgiven?
  8. for2008 yes if you claim bankruptcy or significant financial hardship. Not sure about this year yet...most say not to even file (the 1099A) then plead your case only if the IRS comes after you.