EMC refinancing subprime FBs

[AK]

I’m sure most of you have seen this posted elsewhere … on EMC’s so-called “Mod Squad” that works out forbearance plans or refis with homedebtors in trouble:

http://news.yahoo.com/s/ap/20070404/ap_on_bi_ge/mortgage_modifications_4

I guess they can try aggressive loss prevention on a large scale because (a) Bear Stearns owns EMC; (b) Bear Stearns either holds the loans in portfolio or is the securitizer; and (c) EMC is the servicer.

I do applaud EMC insofar as they’re helping people in cases of bona fide hardship. But I’m sure we all suspect they’re really trying to delay the tidal wave of foreclosure until next quarter / year / applicable bonus period …

[CAwireman]

AK, good post. I wonder if it will be a delay or if it will end up dampening the blow.

This is an approach that could dramatically soften the blow, IF a) more banks take this approach, b) borrowers are accessible enough to communicate with, and c) It makes econimic sense for those holding the mortgages.

Basically, while folks like myself (a renter) would like to see significant corrections in property values, especially in bubblicious SD, the Powerful folks are all in alignment with one another. Here’s what I mean – The Banks and Wallstreet folks have the government lawmakers in their pockets. Agreed? The government has historically encouraged home ownership (Tax deductions for interest, preferential conditions for first-time buyers…)Many/most people if given a shot at a fair market value for a home, would/did take out a mortgage for one. If the prices were more reasonable, I would too.

So, on one side we have: Banking/mortgage industry, Wallstreet, myriad of RE-dependent small, medium, large industries,and last but not least – home owners. And I probably left out many others.

Who does that leave on the “Other side” of the issue:
Renters (like me) licking their wounds for not catching a ride on the last upswing. There are bound to be some others, but I can’t think of any right now.

But, basically, all the might is on the side of business/government/homeowners. The cards are stacked in their favor.

However, if banks have indeed over-extended themselves and their’s just too much speculative value in homes for them to negotiate away, then the possible significant correction we talk about on this blog every day could take place…..

[hipmatt]

cawireman

This is sad but true.

A brainless homeowner facing foreclosure with negative equity has more power right now and is deemed more successful than a responsible renter/saver with over $100k in the bank, and yet they may be getting even more free hand outs and assistance by either the gov., wall street, banks, or any other area of private sector to help keep them in their homes.

What does that tell you about our economy/society/gov.?

[SD Realtor]

Guys why are we surprised by any of this behavior. This sort of stuff was expected by many of us and we even discussed it in previous posts. It would have been foolish to think that with all the trillions of dollars up for grabs that the institutions and politicians would just let things correct by themselves. This bubble is by no means comparable to the stock market bubble. There is alot more riding on this one. The decline will happen, it is just going to be long and slow to the chagrin of many of us. Believe me I wish the market forces could move unimpeded.

SD Realtor

[Anonymous]

As much as I expected to start seeing stuff like this happening, I still don’t like it. People are basically getting rewarded for being stupid and unable to comprehend documents that they sign.

However, I don’t think that these bailouts will be enough to stop the housing decline. It will still happen, but it will be slow. The lenders can mitigate some of the damage, but not near all. We are reading about people who had decent income and were able to be saved. I still would bet that a lot of people are or will soon be beyond hope.

How is someone, who quit a good job, jumped into the mortgage/re business near the peak and leveraged themselves to the hilt to buy a house they have no chance of affording, really going to be able to afford an 800k house? No matter what the terms, it just won’t work. The only things reworking the loan can do is 1) delaying the inevitable foreclosure or 2) giving them some BS 50,60,70 year loan, effectively making them an indentured servant to their lender.

[AK]

EMC could be a special case because Bear Stearns is the originator, servicer, and (bag)holder of the loans.

What happens when securitized loans goes into default? Is loss prevention up to the discretion of the servicers, or do the owners of the mortgage securities participate actively? Do servicers have any real economic incentive to keep people out of foreclosure?

It seems to me that if foreclosure prevention were all that simple, Countrywide wouldn’t be stuck with thousands of REOs.

[hipmatt]

Groups demand foreclosure moratorium http://www.chron.com/disp/story.mpl/business/4689460.html NEW YORK — Civil rights groups called Wednesday for a six-month moratorium on foreclosures resulting from high-risk loans given to people with shaky credit, arguing that lenders should help borrowers refinance their mortgages or face lawsuits. A coalition of advocacy groups said mortgage lenders should immediately halt foreclosures on so-called subprime mortgage loans made at high-interest rates to people with weak credit histories. The groups, at a news conference in Washington, D.C., said a predicted wave of foreclosures stems from "reckless and unaffordable loans" for which investors bear some responsibility. They also said lenders, real estate agents and investors who bought subprime loans could face lawsuits under a federal law prohibiting housing discrimination. Lenders, they said, should help homeowners affected by the problems in the high-risk mortgage market by allowing them to refinance their mortgages. "We know that there are safe and affordable loans that meet the needs of our communities," said Janet Murguia, president of the National Council of La Raza, the nation's largest Hispanic civil rights group. "We are calling on them to match families to the sustainable loans that they should have gotten in the first place. … There are homes of families that can be salvaged." John Robbins, chairman of the Mortgage Bankers Association, said many lenders are setting up payment plans to help avoid foreclosures among borrowers, many of whom have a hard time qualifying for refinancing. James Ballentine, director of housing and economic development at the American Bankers Association, said the call for a moratorium is an "overreaction" to problems in the mortgage market. He said there are many reasons borrowers default — including medical bills and the loss of jobs — that don't necessarily mean a lender took advantage of them. The advocacy groups said high-interest-rate subprime loans harm black and Hispanic home buyers the most, citing data from 2005 showing that subprime loans represented more than 50 percent of all mortgages taken out by black borrowers and 40 percent of Latino borrowers, compared with 19 percent of white borrowers.

[SD Realtor]

Please pass me the duct tape so I can wrap my head in it before it explodes.

[4plexowner]

These kind of games will continue until we abolish the Federal Reserve and re-instate Constitutional money which is gold and silver ONLY.

[Sandi Egan]

six-month moratorium on foreclosures resulting from high-risk loans given to people with shaky credit, arguing that lenders should help borrowers refinance their mortgages or face lawsuits.

Well now. In this scenario, the banks and investors are going to take the hit. In most cases this will mean the banks have to absorb 6 extra month of no payments on defaulted mortgages and are not going to be happy about that. I bet their lobbyists will not allow this to happen.

For us, hoverer, either way will not make much difference. So homes hit the must-sell inventory in a year after the NOD, instead of in six month. So what?

What can affect us, is if the government tries to bail out the mortgages using tax money. Now that will both dampen the blow AND have us pay for it.

[kewp]

I wouldn’t worry too much about this, at best its only going to save those that are only marginally over-leveraged.

And its not going to keep the bubble going, the worst case scenario is a soft landing somewhere over whatever the ‘true’ bottom would be if these folks lost their homes.

[no_such_reality]

I wouldn’t worry too much about this, at best its only going to save those that are only marginally over-leveraged

It won’t do that. The one example they had in the article involved the couple getting a better job, making the past due payment including penalties and then refiancing into a loan that had 8% higher payments than the one they got in trouble with which had 25% higher payments than their original loan because they’d refi’d money.

Will the banks refi you from $1200 to $1500 and then $1600 after you had a couple month problem, paid all the payments and penalties? hell yes! If this is what the “mod squad” does, wait a month or two to see if the owners can suck it up, they aren’t going to make a dent.

[Bugs]

Rewriting a mortgage into conventional terms will only help a small number of borrowers. Those who lied about income to get loans on properties they could never have afforded otherwise are beyond help.

Personally, I think there are a lot more of the latter (the liars), than the former (the honest). So I HOPE the lenders who wrote those loans throw more good money after bad; it will hasten their own demise and flush them from the market for good.

[greekfire]

I agree with Bugs. The hull has already struck the iceberg. The best thing that honest individuals with savings can do is invest their profits into a vehicle that is gaining a higher return than housing…and just wait out this correction. You must be prepared for the long haul and just keep doing what you are doing. Your leverage increases with every day that goes by in which you don’t purchase a home. The real estate industry depends upon consumption just like any other industry.

Heaven forbid there is a hiccup in the employment figures. When that happens (not if, IMHO), it’s party time for the bubble sitters.

[bob007]

It is true that the politicians, bankers, homeowners (who borrowed) are on the same side. The only way they can come out winners is to inflate the US currency. The buyers of the mortgage bonds are the biggest losers. They are the only thing between the US govt bailout of these sub-prime borrowers.

The question to fellow boarders is what do with cash. I have lots of them.

[Author]

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