I think it would probably be more accurate to say that the banks are on a mission to keep as many payments coming in as possible. Their problem is that they have reserve requirements that prevent them from extending credit based solely on the borrowers’ ability to pay. That’s where collateral comes in.

To the extent that they can avoid getting appraisals most of them probably will do so because its expensive. They have been using Broker Price Opinions and Automated Valuation Models instead of appraisals because they’re a lot cheaper, so I imagine they’ll continue to do that as long as they can before those alternate valuation products pass the point of creating more problems than they solve.

After a certain point, there’s no way a lender is going to be able to rationalize writing a new loan that vastly exceeds the value of the property being used as collateral.

I think it would probably be more accurate to say that the banks are on a mission to keep as many payments coming in as possible. Their problem is that they have reserve requirements that prevent them from extending credit based solely on the borrowers’ ability to pay. That’s where collateral comes in.

To the extent that they can avoid getting appraisals most of them probably will do so because its expensive. They have been using Broker Price Opinions and Automated Valuation Models instead of appraisals because they’re a lot cheaper, so I imagine they’ll continue to do that as long as they can before those alternate valuation products pass the point of creating more problems than they solve.

After a certain point, there’s no way a lender is going to be able to rationalize writing a new loan that vastly exceeds the value of the property being used as collateral.

I think it would probably be more accurate to say that the banks are on a mission to keep as many payments coming in as possible. Their problem is that they have reserve requirements that prevent them from extending credit based solely on the borrowers’ ability to pay. That’s where collateral comes in.

To the extent that they can avoid getting appraisals most of them probably will do so because its expensive. They have been using Broker Price Opinions and Automated Valuation Models instead of appraisals because they’re a lot cheaper, so I imagine they’ll continue to do that as long as they can before those alternate valuation products pass the point of creating more problems than they solve.

After a certain point, there’s no way a lender is going to be able to rationalize writing a new loan that vastly exceeds the value of the property being used as collateral.

Another thing the banks want to do is convert a non-recourse original purchase money loan to a recourse refi/2nd mortgage (sink the hook in deeper). On original purchase money loan, they eat the loss on foreclosure. On a recourse, banks have two options. They can pursue you for the difference between what they sold your foreclosed property for and what the loan value was for, or you can get 1099’d for loan loss forgiveness on the difference and they (banks) get to write that down on the taxes they would have to pay. The IRS tends to tread loan loss forgiveness as income.

NOTE:
1) I suspect that the bank will try to ‘game’ the difference in the foreclosure recovery amount and what they pursue you with or 1099 you for.
2) From what I remember, one of the ‘stimulus’ plan provisions was to forego taxing loan loss 1099s as income for a short period of time.

Another thing the banks want to do is convert a non-recourse original purchase money loan to a recourse refi/2nd mortgage (sink the hook in deeper). On original purchase money loan, they eat the loss on foreclosure. On a recourse, banks have two options. They can pursue you for the difference between what they sold your foreclosed property for and what the loan value was for, or you can get 1099’d for loan loss forgiveness on the difference and they (banks) get to write that down on the taxes they would have to pay. The IRS tends to tread loan loss forgiveness as income.

NOTE:
1) I suspect that the bank will try to ‘game’ the difference in the foreclosure recovery amount and what they pursue you with or 1099 you for.
2) From what I remember, one of the ‘stimulus’ plan provisions was to forego taxing loan loss 1099s as income for a short period of time.

FYI,

1)The Mortgage Relief Act of 2007 eliminated 1099’s. If you short sell your home you will not receive a 1099.

2) Even though a refinance loan is recourse by law, very few banks go after borrowers for a deficiency judgment. For starters, they have to pursue “judicial foreclosure” rather than “Trustee Sale” which is lengthy and expensive for them. Also, they realize the person can just file BK and wipe out the judgment so the risk is not worth the reward.

It’s all about the cheapest course of action for the bank, that’s how they gauge decisions.

I work with alot of borrowers who have foreclosed on a refinance loan. Once the Trustee sale occurs, they are free and clear from a deficiency judgment because it has to come by “judicial foreclosure”. I have not seen any deficiency judgments to date…..

The real reality is…there is not much risk to investing in RE in CA other than negative remarks on your credit report which can also be removed.

I know people who stripped all the cash out of their homes prior to foreclosure and walked away with no ramifications other than the credit hit……a have seen short sales and foreclosure remarks be removed from credit reports for these borrowers and their scores return to pre-foreclosure numbers……

Nothing like the good old system…..

Sincerely, Contraman

FYI,

1)The Mortgage Relief Act of 2007 eliminated 1099’s. If you short sell your home you will not receive a 1099.

2) Even though a refinance loan is recourse by law, very few banks go after borrowers for a deficiency judgment. For starters, they have to pursue “judicial foreclosure” rather than “Trustee Sale” which is lengthy and expensive for them. Also, they realize the person can just file BK and wipe out the judgment so the risk is not worth the reward.

It’s all about the cheapest course of action for the bank, that’s how they gauge decisions.

I work with alot of borrowers who have foreclosed on a refinance loan. Once the Trustee sale occurs, they are free and clear from a deficiency judgment because it has to come by “judicial foreclosure”. I have not seen any deficiency judgments to date…..

The real reality is…there is not much risk to investing in RE in CA other than negative remarks on your credit report which can also be removed.

I know people who stripped all the cash out of their homes prior to foreclosure and walked away with no ramifications other than the credit hit……a have seen short sales and foreclosure remarks be removed from credit reports for these borrowers and their scores return to pre-foreclosure numbers……

Nothing like the good old system…..

Sincerely, Contraman