San Diego Housing Bubble News and Analysis

I wish I could threaten to sue to have my principle or loan payment lowered. Sue for being overly responsible.

DJC you cannot open that box...

You see this issue extends to the greater moral hazard that is not only being ignored by the government, but so far by courts. I cannot believe we will not see cases cropping up soon.

Seriously what will happen when thousands, or shall I say tens of thousands of people receive such treatment. Maybe even hundreds of thousands? Who makes the choice? Who makes the rules? When the first lawsuits come, and they will... how will courts rule? Because if courts side with the first plaintiffs that get pissed of because the neighbor next door received a rework and principal reduction while he did not then it seems to me the entire bailout will be jeopardized.

I have already seen a few situations of interest rate reworks but no principal reductions yet.

However it is arguable that even these sort of reworks create a potential source for litigation don't they?

I cannot believe this. Responsibility is being punished while people who are not are rewarded. This will only encourage further deliquency in payments.

Okay, now I need to know how to divert my cash reserves and default on a recourse loan without if affecting my assets.

Maybe your friends' loan got bought by the government and this is part of the $700 billion bailout? God bless America.

Mr. Mortgage had an article on something similar the other day. Supposedly, some "home owners" are getting their interest rates dropped to as low as 2%.

First off, casual coctail party conversation cannot be deemed reliable. People tend to ommit things and overstate the positive. Secondly, without seeing the fine print, you can't tell if they have sold off half their potential future profits as is the case with all reworks and principal reductions thus far.

I can't tell you how many people described the option arm loans inaccurately in 2005, most saying that they will pay it off in 30 years by paying the lowest amount, people actually think these things and can't be faulted for not understanding complex formulas.

Don't be envious of these people, they are in debtors prisons, none are paying the same as rent and none are building any equity, yet most wont benefit from appreciation when it does come. So far, everything I've seen to "keep people in their home" only serves to "keep them from ever owning their home."

Temeculaguy makes a very good point here!! This is a huge thing to happen "outta nowhere". So I doubt very much there's not some gigantic gotcha associated with it in the details. It's a loan contract! Casual talk means nothing regarding contracts.

op, this needs details. did they reappraise the house or did they get one of the new h4h fha loans?

It's principal not principle.

Class action suit would be the way to go.

as I said, I will get more details this week when I see the letter. This was not a "casual cocktail conversation" but more along the lines of my phone ringing and asking if I had heard of this happening to others. they know how closely I follow the RE debacle and knew I'd find it interesting.

I hope that some of the cynics are right and my friend has lost his mind, however with how things have been panning out lately, this scenario would not surprise me.

djc, I wasn't trying to be cynical, just looking at it logically and asking myself the question, "why would a bank who is getting all of their money every month and on time, suddenly ask permission to lose money?" Even when people are in distress they don't get deals like that, why solicit reworks from your performing loans if you are the bank?

Taking the "no free lunch approach" I assume there is a catch or a part of the scenario missing. Be sure to ask questions other than read the letter. There is one other possibility, it could be a scam of some sort from someone other than their bank or someone posing as the bank, verify the phone number with the actual mortgage servicer's number listed online or on the bill. There are outfits fleecing people right now and there have always been mortgage companies marketing to get people out of good loans into bad ones, countrywide was notorious for this, marketing to their own clients.

Another possibility is if the lender is trying to turn a non-recourse loan into a recourse loan. They should definitely have an attorney check out all the paperwork before they sign anything.

i believe this. while there could be a catch, such as making the debt recourse, or some other catch - prepayment penalties? whatever it is - the banks are screwed.

i bought my temecula house for $350k thinking it was such a smoking deal. 1900 sq ft. it is a very nice house and I like it, but the house next to me just went into foreclosure/bank owned and the bank is asking $299k and THAT house is 2500sq ft. so more space, far less money. who knows what it will ultimately sell for.. 250-275k?

making my house worth what?? $200k?

why in the hell woudl the bank want to foreclose on me when they KNOW that they have a $350k loan and they can only get maybe $200k PLUS COSTS to foreclose....

if lowering the payments by $1000/month or whatever keeps people in the home - they will do it b/c the alternative is even worse.

i'm one of those people who CAN afford to stay, does pay on time, am responsible, bought a house within my means... and it pisses me off to see idiots who bought a hosue they had no busines buying, aon an ARM, now cry foul and get their loan % rate, principle all whacked to nothing... b/c they were stupid.

that is such BS. so you know what, why not do it too? i am really thinking of not apying my mortgage. what will happen. the bank is'nt going to foreclose on me. they would lose over $150k. they will threaten me, try to scaer me into paying, but ultimately, if i say "f**K you" and I become a jerk who manipulates the system - guess what, they will renegotiate with me, reduce my int rate, reduce my balnce, they will do something to keep me in the house.

it's a system that drives good responsible people to do things they normally wouldn't do. but if the "system" is goign to reward losers - then why be a good guy and get royally screwed?

23109VC - call you lender and play hardball. Most lenders are only surviving right now because they dont have to recognize upside down loans. But, they cannot avoid defaults. So, they are deathly afraid of people defaulting on their mortgages.
Go on Mr Mortgages website, I think there are some pro's on there that do this kinda thing. Worth a look. Your chance to get back at the Man!

If I still had a mortgage right now, I would be kicking these guys in the crotch as hard as I could. Just my 2 cents.

23109, you made your own bed, now you have to sleep on it. We spent months trying to talk you out of it, but you didn't listen then and you aren't listening now.

The question on the table is why would the bank choose to lose money on the loans they are making money on, why would they solicit a loss on their entire portfolio? My personal question is why would anyone who didn;t need a rework, take one, they are bad for the owner if you have other alternatives.

The other statement that has yet to be refuted is what is so cool about wrecking your credit and then getting a recourse loan and entering into a rework that is designed to never build equity. The same people on here that wouldn't dream of an I/O loan are jealous that reworks are getting what amounts to a deal with the devil and a lifetime I/O loan, yet the reworks sell half of their future appreciation in addition to a lifetime I/O. People hear the words "principal reduction" and lose their minds, I repeat, that principal amount never goes away, they just reduce it for purposes of determining payment, they still owe it. It's like taking on a partner, like going halfsies on a house with a relative.

They never reduce your balance, they just base the payment on a reduced amount, so you pay less per month but the original loan amount haunts you forever. You can never take out a heloc, refi, sell or do anything without settling the original debt, fees, etc. It's just renting with a lifetime overpriced lease.

The system doesn't drive anyone anywhere, it fools them, just like teaser rates and 0 down fooled them into thinking they could afford more than they could, this fools them into thinking they can keep what they can't afford, they can live there but they keep nothing when the ride is over. Look at 10 years from now, they will essentially have nothing after they sell, that is not how I define home ownership.

You may feel like the good guy 23109, and you have the opportunity to be that guy, by paying your mortgage and paying for the mistake that YOU made, not the guy across the street, not the government, not the bank, but the mistake that YOU made. Your eyes were wide open, you knew the risks, no unscrupulous lender lied to you.

It's not the end of the world, people make worse mistakes all the time. How we behave after we make mistakes is what defines us, I've screwed up before and I will again but it will be my fault and I will make amends, you need to as well.

BTW-they wont renegotiate with you, you have an "over the table" job with all your income reported. The best they will do is make your payment .37 of your gross income, if you gross 10k a month, that is 3700, and I believe it is P&I, not inclusive of hoa, tax and ins., so unless you are paying more than 4k, they wont help. From memory, you didn't put 20% down and I can't remember if you took a fixed rate fully amortized 30 yr. If you have an adjustable or an I/O you can probably get it switched into a 30 yr fixed for nothing, that is where you can negotiate, however, the payment goes up, not down.

Someone has aptly said so "If you owe bank 10K, it's your problem but if you owe your back 100K, its the bank problem"
It looks like this saying is becoming reality..

everyone here told me not to buy. i did. shame on me. but I could care less at this point about being "the good guy" and just paying on my loan. in my opnion, that would be the dumb schmuck way to do it.

in this game, being nice nd upstanding gets you nothing. if the tables were turned, and I fell on hard times, and my house was worth twice what I paid, the banks would froth at the mouth to kcik me out, sell it, and pocket the money. now that it's the reverse, why should I be "mr nice guy" and just take it up the a$$.

housin prices got run up b/c of these frickin banks, and b/c of morons who bought what they coudlnt' buy. yeah, I bought it. but why should I pay the high inflated price, and when it all collapses, just hold hte bag and take it while everyone else gets a freebie.

in the end, I can just milk it for a year, then walk away. i have some rich relatives who could buy me a house for cash and carry paper. i could just rent for a while and repair my credit. i'm at the point where I honestly don't care.

if I stay in myh ouse, lose my house, rent a house - given everything going on with the economy, the housing market, I don't care anymore. i may have gotten caught up in that whole" i've got to own a house" thing, and now i've snapped out of it and relaize it's just a box i live in, and as far as I'm concerned, i'm just looking to pay as little as possible for the nicest place to live.

if staying in my house ends up making sense, I'll do it. but when you have a mortgage amount of approx $350k and your house is worth $200k, staying in the house might actually be the STUPID thing to do. i have a 100% non recourse loan. I can pack up my stuff, walk away, and the bank takes it up the a$$ not me. my credit gets screwed, but i really dont' care. hal fthe country will have scrwed up credit by the time this is said and done with, maybe more than 50%...

i'm trying to view this from a rational standpoint. i'm envisioning that there is going to come a point where my house price will go so low, that if I were to sit down with a financial planner, economic advisor - and explained my situation they woudl say "dump your house". that is the SMART thing to do. let the bank eat the loss. rent something else.

it realistically may be that I would be AHEAD financially if I were to let my credit get hit, spend less oney on a rental, and pocket money, repair my creidt, and then rebuy later when prices are more rational. VS suck it up an stay/pay and wait 15 years to see any equity....

i made the bed, I'm lying in it. I'm not blaming others. I'm not a "victim" - but I do feel a sense of frustration that as a hard working productive member of society who got caught up i the "buy the American dream" and boght a home that I COULD afford..I have a big payment but I have a big salary (relative to the general public) I"m sure many of you are far better off than me..I don't mean it in an arrogant way..just that I earn good money and I bought a hosue with a 30 yr fixed that I CAN afford. but the prices were blown out of proportio nby all the morons who bought what they coudl not afford.

now prices are collapsing. and b/c the dumb banks let me in wiht 100% financing, I have the option to just walk and lose no money. just my credit..so at some point, you ahve to seriously consider that option.

if the bank will renegotiate with me and make it worthwhile to stay, great. if not, they can frickin have it.

now I don't know about temecula guys statements that banks aren't really giving any one anything. if they say they will convert my 30 yr fixed P&I loan into an interst only..that gets me nothign excpet saving montly monty and effectivel make me like a long term renter...

now if they would actually reduce my principal, just write off part of what I owe, and/or lower my int rate, that would be great. my rates now are only so-so. i have a first at like 6.5 and a second at over 7 i think...crappy rates. i coud probably push hard for them to drop those to very aggressive rates..

but i'm not going to makei t recourse debt. if they want to play that game, i can just tell them to come get the house. in the end, they lose harder than I do. which is why i think an effective negotiator has them over a barrel and can dictate terms.

it's not about being fair or upstanding anymore. it's about taking advantage of the situation to do better for yourself - it's not illegal - it's business.

"it's not about being fair or upstanding anymore. it's about taking advantage of the situation to do better for yourself - it's not illegal - it's business"

Why not take it a step further. Familiarize yourself with the 1969 case of Daly V some bank.

The case was made that the home was never really the banks because it did not have in legal speak "consideration". The money was was created out of thin air and was never in the possession of the bank and thus the home was not the property of the bank in legal terms.

http://www.foreclosurefish.com/blog/inde...

The judge and a representative testifying on behalf of the bank also agreed with Daly's argument, in effect. The bank's president, Mr. Morgan, admitted that the money did not exist until Daly was given the mortgage, and the money was created out of thin air.

This case has been suppressed far more than argued against, and it has not been overturned. What this means to homeowners facing foreclosure is that they may not even owe their bank any money, and the lender is trying to take the home to pay an illegal contract. This case is, quite possibly, a get out of debt-jail free card.

23109VC, even if you were to refinance and have a recourse mortgage, as I understand it, the lender can only obtain a deficiency judgment though legal foreclosure (and not trustee's sale).

So lenders who foreclose through trustees' sales (the normal way of foreclosing in CA) actually give up recourse, regardless of whether the loans were purchase money or not.

Of course, if there are other recourse debts, those lenders could go to court and obtain deficiency judgments. But would they want to spend good money trying to get blood out of a turnip?

"What this means to homeowners facing foreclosure is that they may not even owe their bank any money, and the lender is trying to take the home to pay an illegal contract."

Why would this apply only to homeowners facing foreclosure?

Why wouldn't this apply to every single homeowner because in essence, no lender has "consideration" do they?

Why wouldn't this apply to every single homeowner because in essence, no lender has "consideration" do they?

That's right. Kind of a trip when you think about it. Now just think about the huge wave of defaults on mortgages and other debts that is starting. All was created out of thin air from the privately run Federal Reserve and it's web of commercial banks around it.

A small group of people is going to own everything when this tsunami is done. All from something that is imaginary, created with a keystroke, electrons on a screen. If one wanted to look at this as a huge scam one could. Because the guys who caused this mess are going to own it all in the end and leave us all debt slaves to their imaginary money. Ironically, we will give them things of real value for the fake money they created. Fundamentally our monetary system is modern day wizardry and smoke and mirrors.

Tom Jefferson understood the endgame.

"I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." -- Thomas Jefferson -- The Debate Over The Recharter Of The Bank Bill, (1809)

all I know is that in the near future, my house will be worth about $200k LESS than what I owe.

so why keep it? with 100% financing - explain to me the "benefit" of keeping it and paying all that money every month on a house leveraged to $350k that is only worth $150k.

I would think that at some point - I will be able to rent a bigger/better/nicer house for LESS money and since my house is going to be $200k upside down, and I put nothign into it - the most logical and financially reasonable thing to do would be dump it on teh bank and walk.

i really don't care about what is "right" or what would be the "morally appropriate" thing to do. sad to say it, but if I have to shaft my bank and save my own neck - so be it. it's money, it was a contract, and it went sour - and unfortuntely for the bank, they were dumb enough to loan me that much money on an asset that just took a dump. I promised to pay, but if I don't pay, they get to have the house. that's how it works. it's all legal.

believe me, if there was a claus that said if my house tripled in value they were entitled to sell my hosue and pocket the proceeds - and it did that - they wouldn't "feel sorry for me" and let me stay - they'd throw my a$$ out so fast it woudl make my head spin. i'm looking at this STRICTLY from a standpoint of what makes the most financial sense.

the best option woudl to have never bought the house in the first place. i dind't listen to you guys, did it anyway, so here I am. no point in whining over that now. what's done is done. you guys were right. i can admit that.

but now that it's happened - the next question is what is my next option. Keeping or dumping the hosue - to me - is mostly motviated by how upside down the hosue is, how long it will take to recoup that money, and largely - what will it cost me on a monthly basis to replace what I have now.

right now I have what I would consider a very nicely upgraded, nicely loaced, but somewhat "small" house in Harveston. about 1900 sq ft. one story. nicely fixed up. it has all the 'bells and whistles' i want in a house.

I pay about $3200-3300 a month when you factor in principal/interest/HOA, etc.

I earn about $140k/year roughly. do the math. even with my tax writeoff - I think I woudl be saving a good $500+/month if I left this house, and rented a bigger/better house that woudl cost me around $2000/month. no HOA, no upkeep - just pay monthly rent.

I could drag out the foreclosure process for a year, pocket about $36000. then paying $2000/month in rent - I'd have a bigger hosue (which my wife wants - we had another baby) - and pay less money.

Not sure where you can rent a bigger better house in the same area for 2k. Check craigslist.

$500 per month is 4.3% of your income.
That's what your talking about saving by walking away. And you've been in the house less than a year.

I know it is psychologically troubling that your house is $100K underwater. It might ultimately behoove you to walk away. But you have the option of staying there as long as you want before you walk for a relatively small fraction of your salary. Maybe your next raise or two will cover the loss. Small potatoes.
I'd at least hang around for another couple years to see how far it goes and what remedies might be offered before starting to walk.

It is likely that within a few years (maybe 5 or so) that rents will be equal to your payment or higher.

But, why even worry about what your house is worth in order to save a measly 4.3% of your salary ?

OK 23109VC, your last post tells me you're starting to think like an investor. Cut your losses and make the right move going forward. You just learned a great lesson. Your strategy sounds very logical to me. (Look into the tax implications if you default. I believe you'll owe the IRS money.)
2009 could be an all-time disaster in CA real estate. Best not to be in it.

$140K/year, good on ya! Now use what you've learned to turn that into some real money in the future.

Also consider this...how many investments would let you get away with defaulting? Most people would just lose $200K in a typical venture...OUCH!!! I gotta believe that next year there will incredible amounts of non-payments on mortgages. But I doubt the lenders will be forcing the foreclosure process. They're screwed.

Here is some more information. Yes, it simply was a letter and it is stated their loan's interest would be reduced from 5.7x to 4.xx. All other parts of their original contract remains the same. It is simply an interest rate cut.

They did not call the number provided on the letter, but called the number they had for their bank and couldn't get much information. Yesterday, they went down to a branch office and spoke to someone at the bank who told them that yes, this is legit, their interest rate is being cut and it will be in effect not this next payment, but the following. Nothing to sign! When asked why this is happening, he stated the bank received loans from the government and they have to use some of the monies for this purpose.

The person really didn't have much else to offer after an hour of discussions and my friends are still confused. They said that they didn't want this reduction as they are fearful of recourse (they also subscribe to the 'no free lunch' mentality mentioned above) and want things to 'stay the way they are'. The bank gentleman didn't know what to do and referred them to the number on the letter.

They are seeing a RE lawyer this week for advice.

---

I agree this whole thing makes no logical sense, but on the other hand, nothing in this industry over the last 3 months DOES make logical sense. For all I know, perhaps receiving the loans from the government has conditions that banks 'help homeowners stay in their homes', but didn't specify any criteria. Perhaps reducing a loan 1% or so on a good standing customer meets that requirement and will keep that revenue stream open, whereas reducing it on someone who is underwater on two loans who will lose the place regardless only gives the bank the useless asset they'll get anyway.

Or perhaps the banks are rewarding those who took out fixed loans they could afford.

tg,

Thanks for your reply and clarification. I too thought 'why would they do this, this makes no logical sense at all', which is why I brought the question here to solicit answers from people whose opinion I respect on the subject.

Speaking of, I am interested in the criteria you are using for your Temecula house hunt. As you may remember, I'm renting in VR as this is shaking out and may end up staying in Temecula depending on a few factors. You have some specific things you are looking for, one of which is orientation to the sun which is something I had not even thought of. Would you mind sharing some of this information with me so I know what to look for and what to avoid? If so, my email is svtdriver(at)gmail.

thanks

djc, i sent you an e-mail.

23109, when you talk yourself into something there's no talking you out of it so just walk away after your free rent period. Your wife wants a bigger house, if you recall i hounded you about resisting her urge to buy because you were planning/expecting more kids and would outgrow the place, now you have. I remember writing extensively on the psychological influence of female nesting, those were good times.

Most of us, self included, have been upside down on houses before. I made a down payment in 1991 and was still underwater until about 1998. It didn't hurt too bad, my payment was managable and I survived because i didn't sell while I was underwater, I just had too small of a house. The one regret i have about that house is that i sold it, I really wish i had kept it as a rental, even in this market it would have equity and the rent is double what the payment was. You might think about getting the bigger house and keeping the current one, renting it out. It might sting for a few years but in time it will work out and you have the income to support it. R/E is funny like that, this last cycle twisted people's mind thinking it goes up quickly, prior to this bubble, if you stayed in a house less than 3 years you lost money, keep it 20 years, you make money, those rules still apply today.

23109, Am I really understanding your situation correctly?

You have a managable payment and knew of the volatile market going in. So whats the problem with honoring your contract? True, you don't have as much *house-for-the-money* as what your neighbor can buy right now, but so what?

The fact is you make a good salary and can comfortably afford the payment on the contract you willingly signed. SUCK IT UP AND HONOR YOUR COMMITMENT YOU LOSER!

I would feel sorry for you if perhaps you lost your job and could no longer afford the payment, but that is not the case here.

There once was such a thing as *debtors prisons*.........perhaps we need them again since words like Morality, ethics and pride don't resonate with people like you.

Murf2222

These sorts of nasty comments are uncalled for. He is honoring the contract. The contract apparently allows for walking away. But even if it didn't, even if he were breaching the contract, well, to say that breaching a contract is indicative of a lack of morality ethics or pride is, well, kind of just wrong.

Indeed, in contracts class at most any law school you might pass through, most professors will touch on the subject of efficient breach and the policy issues involved. Since contracts and exchanges are supposed to maximize utility and happiness, we as a society don't want people locked into contracts and would prefer that they breach them when the breach results in greater utility all around.

there can be penalties for breach, and that's certainly part of making sure the breach is efficient, so long as everyone understands and agrees on the penalties if any at the outset. or the contract could allow for breach by either party at any time. Like an employment contract could say, hey, you can quit any time, we can fire you any time. That would be arguably be more efficient in some cases, since the employer could get rid of a deadbeat and the employee could move on to greener pastures.

Maybe the easiest example to see is marriage. We prefer miserable people to get divorced. it's less eficient for society if wives stay witht heir abusers, or men stay with women who won't have sex with them. Better to breach the contract so that both parties can maximize their happines. Honoring the contract for its own sake probably doesn't make us a more moral, ethical or prouder society. Ideally, it would be nice if the parties wanted to honor the contract, but would you yell at some woman who was breaching her marriage contract that she has no pride because she was breaking her marriage contract and dumping the dude who beat and raped her every night? so, grow up...don't berate a guy for the efficient breach of his contract.