San Diego Housing Market News and Analysis

Funny, I ahve heard of similiar stories with respect to credit card companies. Basically go delinquent threaten banruptcy and they forgive 60 % of the debt. You go through an workout program and get a hit on your credit but if their are no major purchaes coming up , who cares. Seems a little dodgy too me.

It doesn't pay to be fiscally responsible in this country.

Mr. Wrong

You wrote: in the end the banks investors are going to be left holding the bag.

Exactly. And this is why we are seeing that although the rates on the 10yr are going down, mortgage rates haven't gone down. All these workouts, bailouts and other programs in the end will make buying mortgages less attractive. And that's why in the end they won't stop the housing decline. (If investors don't buy mortgages then the price of mortgages goes up. If the price of mortgages goes up, then the housing decline accelerates.)

XBoxBoy

So now the FB's owe 400k instead of 500k on something worth maybe 200k tops. Doesn't seem like a great deal from my POV.

This isn't going to save investment properties purchased during the bubble. 100% of those are going to be defaulted on.

Update Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

I'm doing the same thing as that guy, but on a volunteer basis (Loan Advocacy).  Hmmmm.  Perhaps I should charge a little something.

So I have a question...

What happens if I originally borrowed $500k, and then things fall apart, and the bank says "Hey, you only owe us $400k."

Does that show up on my credit?

JS

The things that show up on credit are lates, defaults and how much of your available credit you've used.

If you renegotiate your loan with your lender, technically you should get a new Note (spelling out new terms, payments and balance) and your old loan arrangment should be gone.

However, if the bank wants to write-off the lost $100K on their tax return, they'll likely send you a 1099 and it gets reported as bad debt (they were unable to collect) and they can still report this on your credit as a collection (as in a foreclosure).

If they send you a 1099-C, then they report it as bad debt, forgiven. Which means they won't go after you anymore, ever. It's still income to you, but the account on your credit will say, "paid in full" or "account closed," which is not a negative mark on your credit.

Actually loan rewrites/forgiveness/whatever you want to call them is something that Piggs should be very much against.

1 - Will you get dinged on your credit? Maybe/Maybe not. Credit scores get dinged if your creditor makes a report to credit agencies. What follows is speculative by me but if you are simply negotiating a deal with the lender it seems that this is kind of a voluntary deal and you could most likely strike the deal where the lender will not make a report to the credit agencies that will affect your score. Again that is a SPECULATIVE STATEMENT.

2 - What is far worse though is that this is a very real way to accomodate the bearish point of view without affecting comps. What if we had tens of thousands of rewrites? There is no formal way for an appraiser to figure out which homes were forgiven. If you look at the tax roll the new loan will simply look like a refinance. Who is to say which tax rolls were forgiveness acts and which were true refinances. You see what I am saying?

From the perspective of a person who wants to buy, who wants to see the depreciation continue, I am very much against these sorts of rewrites.

SD Realtor

You're right, SD. It's another form of fighting the price correction that really needs to happen. It may be painful, but the markets really need to be set free. Manipulation of the markets by the Fed thru monetary policy and the government thru fiscal policy needs to just STOP.

I know that what I am about to say is going to trigger vile retorts, but the real enemy is inflation. Helicopter Ben needs to be handcuffed to his bathroom tub to prevent him from further cutting the prime lending rate.

Well Deal Hunter, if you get vile retorts they will not be from me. I could not agree more that inflation is the enemy. If we saw a radical tightening of the money supply it would be bad medicine indeed but most likely yield the quickest recovery.

SD Realtor

On the whole re-write issue, wouldn't the old contract or mortgage need to be set-aside and a new mortgage recorded? I don't know the mechanics of the process intimately but it seems like thats more of a story than a reality. The bank just lops off money you owe them? It may be practical, but it seems like there would be a huge paper trail. A paper trail that would have county recorded tie-ins.

As a second issue I don't think it matters that much. All the bank is doing is recognizing market value such as it is today and adjusting what you owe accordingly. They wouldn't be doing this is they thought that by selling the property after a foreclosure they would get more or even the same on the open market. It sounds distasteful, because it rewards the risky behavior we on this site abhor, but its still a form of market price discovery.

Is there any way to get more information on this practice?

Josh

What I don't like about this is the idea that it would only be for "distressed" owners. Anyone who bought at the peak is going to be sitting in a house that is worth less than they bought it for, but if you bought something you could afford, too bad. If you bought something you could not afford, you get bailed out. Either bail out everyone or no one.

Submitted by barnaby33 on February 29:
On the whole re-write issue, wouldn't the old contract or mortgage need to be set-aside and a new mortgage recorded?

That's a question that I am asking. With these loans having changed hands and going to MBS and CDOs - how can you just toss the old contract aside - unless there was something stated in the loan origination that allowed it.

Partial Claim - This is the hidden danger in "renegotiation" of loans. In addition to the rewriting of the loan itself, there is the issue of what happens to the unpaid late payments, unpaid penalties, or deferred interest incurred at the higher rate or payment recast.

One thing that counselors at HOPE Now don't explain to borrowers in much detail is the PARTIAL CLAIM on the amount of loss that the lenders have to somehow account for. The Partial Claim can be any number of things that the homeowner simply "agrees to" with an initial or signture on a single-page disclosure.

Types of Partial Claims:
- Add late payments and unpaid penalties to balance of loan
- Place a separate lien on the property for the unpaid payments and penalties
- Issue a separate unsecured note for the said amount to the borrowers.
- Place a lien on borrower's other property or future wages for unpaid lates and penalties via UCC-1 (varies by state).

Most, if not all of the above would never get past consumer advocacy groups, but I can see how any of them could be easily slipped under the nose of a desperate homeowner trying to stave off forclosure. All it takes is a signature on a disclosure that they hope the homeowner never reads.

Very scary stuff.

I think this is going to blow up in the banks face eventually.

Once it gets out that all have you to do to get better terms on your mortgage is stop paying it, millions of Americans are going to do just that. Whether they are distressed or not.

Ultimately the banks will either have to stop the practice or go bankrupt.

Don't mistake this practice as something that is just between the banks or loan servicers and homeowner. Realize that all parties need to play a part in order to avoid lawsuits. Thus the real point of contention is will the investors allow this. Also trying to recast a single mortgage when it may be chopped into bacon bits and sprinkled throughout several other obligations seems to be quite unrealistic to me. Yet make no mistakes I have heard of them successfully being recast but I don't have details of any of them such as how unpaid fines, and other issues were indeed resolved.

As far as the property taxes go there really is not any correlation. The assessment that the county makes on your home is somewhat orthogonal to what you owe a lender. Don't confuse the two. Your assessment is based on what the county thinks your home is worth and it is up to you to change the assessment by proving the devaluation of your home based on comps. If you are someone who has had a reworked loan I am sure providing the county that information will help your reassessment but you will still most likely need comps from other homes which shouldn't be to hard to find.

Kewp - In theory there really is no difference in this practice or the bank letting the home go to foreclosure and selling it as an REO. In practice though, my OPINION which is not worth much is that I bet the recidivisim (sorry for butchering the word) is most likely high even after the loan workout.

SD Realtor

Regarding renegotiating loans. I have no problem making my payments except that I feel that it's futile - given the drop in housing values, I could easily walk across the street, buy that house and call this house a total loss. It's tempting.

I think we all know that the availability of credit is the primary driver of housing inflation, so I don't feel bad for the banks when they lose their shirts on bad loans.

What I'm wondering is how to get them (the banks) to see that these tables are turned, probably permanently - and how to rescue our current housing so that people keep the homes they're in without unjustly rewarding the irresponsible nor punishing the responsible.

That's easy. Let events unfold without intervention.

Those that are to able to afford the cost of ownership stay, those that can't go. Those that can't probably shouldn't have bought to begin with.

High home prices doesn't benefit anyone but, the guy heading for the exit.

If I were to buy even at today's "affordable" prices, none of my income would go back into the community. I would make my payments and not do much else. That isn't a very health life for me or the community I live in.

I've been wondering about this. So if my neighbor, who could never afford his house in the first place, gets a $200K gift from the bank, that is tax free? And 10 years from now, when he sells at a profit (and I sell at break-even), does he get the homeowner's exemption on capital gains as well?

A decade from now there will be a class of people who realize a nice gain even though they made poor investment choices. You'll know who they are, because they will be the ones buying the toys again...

I have no problem with Loan Mods as it pertains to adjusting an interest rate, or term, or forgiving late payments. But the idea of a "principal reduction" enrages me beyond belief.

I have no trouble hearing about a 30 year being turned into a 40 year, or adjusting an interest rate for someone who might not qualify for a refi purely on the current standards, to help them stay in a home that they truly intend to live in. If someone is layed off due to no real fault of their own, and a bank saw fit to float them 3 months or a year of missed payments (tacked back on at the end of course), then I'm ok with that also.

But to simply say that a house you bought for $500K, you now only have to repay $300K, when you could never afford $500K in the first place, especially given that the taxpayers are generally footing the difference, makes me want to literally go postal on Capitol Hill. What in God's name makes any policy maker or bank exec think this is a good, fair idea?

Oh yeah, those loan mod outfits, many of them are shams and thiefs and former Johnny come lately mortgage brokers who are now stealing peoples money on the back end, instead of the front end. The clients who use those loan mod services are almost universally the ones who never read their loan contracts in the first place, thus letting themselves get into the mess by trusting others without doing any homework. The whole loan mod industry is a crock, designed purely to take advantage of the lazy and stupid.

/end rant

Principal reductions are still pretty rare when looking at the California mortgage modification report:

http://effectivedemand.blogspot.com/2009...

Hmmm.. I wonder if I can renegotiate my rent.

I think you're reading too much into this. First the $200k "gift" most likely won't materialize, and even if it does, in real dollars it's not going to be worth *that* much in the future :)

Second, folks that got themselves into a big mess by ATMing their house to death are never gonna learn with this bailout, and eventually they'll be back to square one in the future. You think these folks are going to suddenly wake up and say, "holy crap, I better be more frugal" and start saving?

They only way thee folks will ever learn is if they are thrown out onto the street and have to scrape by for a short period of time.Nope....Only next time there won't be a bailout covering their asses. :)

Wealth generally isn't built overnight by a 1 event lucky shot. And these clowns end up spending $2 for every $1 they have access to.

I agree many who get loan mods will still lose the house eventually, but many mods will bring the payments into line with their income and people will wake up and pay their mortgage. After all, they have to live somewhere. (And yes, the future value of the money will be less, so the numbers aren't completely consistent.)

But most of the people underwater are not simply going to spiral into homelessness. It is overly simplistic to characterize them all as self-destructively reckless. However they should pay for their mistakes, not others.

A decade or two from now, a lot of people will be cashing in their gifts, made possible by the taxpayer. At any amount, these should not be tax free.

Agreed, pri_dk. People who spend big without earning big will eventually die, but that doesn't change the fact that before then, they will have unfairly enjoyed the fruits of others' labor.

I'm in a similar position. Can you post the phone number to your friend's business?

Hi..Im new to this site and this article grabbed me hard. I am very surprised to hear how angry and personal alot of people feel about someone who is hoping to renegotiate the terms,percent,principal amount or whatever they can on the loans they made. I dont like the way the ecomony is and so many people I know are choking on their mortgage payments. I am one of those choking on 8 mortgage payments. It seems you feel that I should just suffer and since I am lazy and or stupid I deserve this..?? Us real estate investors are neither,we put our necks out trying to make changes in our lives,in turn helps those who rent and not buy.we put down tons of money to purchase a property, and yes when things were good we didnt sit and stop and think,what if this all goes down the drain fast?How do I pay all this? Ive got 3 properties that I owe more than its worth now,and those were actually good investments at the time,NOW?I want to shoot myself everyday.The only reason i havent been foreclosed on is fom the cash flow of the other properties.(thank god above for that)If we can get the banks to drop the loan amount to fair price or renigotiate the terms it is better for all.We then can afford to keep our properties,not get foreclosed on,which is bad for the area.then when the average Joe comes to buy the value of his property is compared to the foreclosed ones. I may have stretched myself a little thin but I was able to afford it at the time.Renters leave due to layoffs,renters dont pay,destroy property,more crimes are commited,etc.Maybe instead of calling all of us idiots,think what it really means to put millions into property hoping to build wealth for your family and have all that money become worth nothing!!You should be villifying the county tax assesors, who raise taxes by doubling each year,the condo associations who double the fees several times a year, and the banks and brokerage houses that took billions of our hard earned money and gave it to their Big wheels, who LOST IT ALL!!I cant pay my property taxes,so they double it( 1 house is $16,000 a year now!!started at $2,500) and give it to JP Morgan to give a nice $3 million dollar bonus. THATS what the problem is.The banks took billions of dollars from us,you and me, so adjusting mortgages of those who have alot of money at risk is the least they can do!!!
and that is my rant...cheers

This has got to be a troll.

I don't even know where to start. Let me get this straight. You are a real estate "investor" that made a bad "investment" decision and now you want to be bailed out, funded by taxpayers??? How about this... My stock investments fell from the peak of the bubbble, can I apply for a refund and have your tax dollars pay me back please. (Yeah, I was misled and it was the banks faults)...

LOL...You have 3 properties that you can't make payments on and you want to be bailed out....Um....I don't think you'll find too much sympathy here because there are plenty of people that don't even own one because they are frugal...

Clearly, then you are not an "investor" but a gambler that now doesn't like it that the gamble didn't turn your way. Because true "investors" balance risk versus rewards and assume responsibilities for those risks when they go sour. What did you do with all the money made when "times were good"?? Didn't you save it for a rainy day. Or did you blow it on bling?

Misscotroneo = Casey Serin?

Get a job. Don't buy things you can't afford. Stop blaming other people for your mistakes.

"helps those who rent and not buy" ... yeah right, I highly doubt you were trying to help improve the lives of the poor renters.

"How do I pay all this?" ... maybe you should have thought that through before you signed 8 mortgages.

"I may have stretched myself a little thin" ... do you think? Is this a reason to get a bailout?

"Renters leave due to layoffs,renters dont pay,destroy property,more crimes are commited,etc" ... I thought you were trying to help the renters?

I agree. Whenever I see a strong of sentences and no use of paragraphs, I find it impossible to even read.

I stopped at the phrase "choking on 8 mortgage payments".