People who can’t afford their house but get to keep it?!

[treehugger]

coworker, makes similar money to me (we are government employees and we make decent money, but do not make big money), his wife works part time. During the boom years they bought an attached home in La Costa that cost them $650,000 (plus HOA). 1st and a 2nd (so obviously there was no large down payment). Last year he was thinking it would go to foreclosure. I told him there were programs that might be able to help. He ended up qualifying. His monthly payment has been reduced from close to $5000 down to $2100. I have just refinanced for the 2nd time (thank you Sheldon) a house I can afford with a conventional loan (thank you again Sheldon) and reduced my monthly payment. If I talk about how excited I am about lowering my monthly payment he chimes in with “oh I just lowered my monthly payment too, my 2nd just got reduced”. I can’t help myself, I tell him to stop talking to me and he really doesn’t want to know what I think..big difference buddy, I bought a house I can afford…it just came out, I know it was wrong….

[UCGal]

It’s very frustrating.
There’s moral hazard everywhere around us.
There are no consequences for bad decisions.

From the banks who gave out crappy loans to the buyers who bought more than they could reasonably afford. Neither side is paying the price for these stupid transactions.

[bearishgurl]

[quote=treehugger]…I told him there were programs that might be able to help. He ended up qualifying. His monthly payment has been reduced from close to $5000 down to $2100. I have just refinanced for the 2nd time . . . If I talk about how excited I am about lowering my monthly payment he chimes in with “oh I just lowered my monthly payment too, my 2nd just got reduced”. . .[/quote]

treehugger, even though your co-worker claims to have gotten his “2nd” reduced, what he very likely means is that he got his payments reduced on his “2nd.” A mod is only a change in terms of his loan. He very likely could now have a 40 year mtg on his 1st TD and got the interest rate only lowered on his “2nd.” If you are able to engage him in conversation to delve further into the matter, you will likely find out he is still very much underwater and will only be making a minuscule dent on his principal in both mtgs.

It is also possible that both his mods are I/O only for a period of time, thus he wouldn’t currently be paying down their principals at all.

So what if he “gets” to live in a LC condo for around $2100 mo. This likely does not include taxes and HOA dues and his taxes likely have some MR in them, as well. With a 40 yr mtg, he will not be able to build equity fast enough so cannot sell for a good many years (and possibly never) without his lender selling VERY short and his credit taking a BIG HIT!

How is your co-worker “making out” better than you? IMHO, it seems like he is nothing but a lifelong tenant who can’t even move without finding a reliable tenant OR letting his credit go to sh!t! And it is VERY possible that the terms of his mods prevent him from turning the unit into a rental.

And even if RE prices skyrocket in the next ten years, he may also have quite a bit of “deferred interest” built up on his lender’s books by the time of sale (due to the mod), which will undoubtedly be called in on their demand in escrow :=0

More often than not, all is not as rosy at it appears on the surface.

If you are still working together in 2-3 years, talk to him again then and see if he is still “bragging” about his “loan mod,” lol . . .

[CA renter]

[quote=bearishgurl][quote=treehugger]…I told him there were programs that might be able to help. He ended up qualifying. His monthly payment has been reduced from close to $5000 down to $2100. I have just refinanced for the 2nd time . . . If I talk about how excited I am about lowering my monthly payment he chimes in with “oh I just lowered my monthly payment too, my 2nd just got reduced”. . .[/quote]

treehugger, even though your co-worker claims to have gotten his “2nd” reduced, what he very likely means is that he got his payments reduced on his “2nd.” A mod is only a change in terms of his loan. He very likely could now have a 40 year mtg on his 1st TD and got the interest rate only lowered on his “2nd.” If you are able to engage him in conversation to delve further into the matter, you will likely find out he is still very much underwater and will only be making a minuscule dent on his principal in both mtgs.

It is also possible that both his mods are I/O only for a period of time, thus he wouldn’t currently be paying down their principals at all.

So what if he “gets” to live in a LC condo for around $2100 mo. This likely does not include taxes and HOA dues and his taxes likely have some MR in them, as well. With a 40 yr mtg, he will not be able to build equity fast enough so cannot sell for a good many years (and possibly never) without his lender selling VERY short and his credit taking a BIG HIT!

How is your co-worker “making out” better than you? IMHO, it seems like he is nothing but a lifelong tenant who can’t even move without finding a reliable tenant OR letting his credit go to sh!t! And it is VERY possible that the terms of his mods prevent him from turning the unit into a rental.

And even if RE prices skyrocket in the next ten years, he may also have quite a bit of “deferred interest” built up on his lender’s books by the time of sale (due to the mod), which will undoubtedly be called in on their demand in escrow :=0

More often than not, all is not as rosy at it appears on the surface.

If you are still working together in 2-3 years, talk to him again then and see if he is still “bragging” about his “loan mod,” lol . . .[/quote]

Sure hope you’re right, BG. Unfortunately, from some of the stories I’ve heard, treehugger might be right, too.

Sorry you have to hear stories like that, treehugger, but am glad to hear that you were able to get your already-affordable payments reduced further!

[bearishgurl]

[quote=CA renter]Sure hope you’re right, BG. Unfortunately, from some of the stories I’ve heard, treehugger might be right, too.

Sorry you have to hear stories like that, treehugger, but am glad to hear that you were able to get your already-affordable payments reduced further![/quote]

CAR, if you’re referring to principal reduction or cramdown, I haven’t yet heard of any underwater homeowners being successful with that, outside of “loan forgiveness” thru short-selling and taking the hit to their credit or a jr lienholder being wiped out in a non-judicial foreclosure.

[treehugger]

You are probably correct in your assessment of his housing situation and he will probably end up in foreclosure before it is all over. His reality is he is also in an unhappy marriage with a controlling wife and just had a second baby (a whole nother topic of men making bad choices). His life sucks and we here at the office get to hear all about it everyday. So, he will probably end up losing his house and getting divorced. I will try to make myself pity him instead of despise him….naaah, can’t do it, he is an idiot and I just want him to stop talking to me.

On the flip side all of this CHAOS helped me buy a house and refi into a lower rate.

[NotCranky]

I think most people who get loan mods have figured out it’s crap compared to anything else but they have settled in order to not lose the house…and they don’t talk about it.

There are some who really have never done anything smart in housing/investing and kid themselves into believing they have, via a loan mod. They are punch drunk. I have met a few, when you ask them about the terms they don’t know what they are. Or have a vague notion but don’t want to go there. So, I think BG is mostly right about the deal.

I guess there are some that are getting a good loan mod deal. I think sdrealtor has mentioned knowing at least one.

I know of people who have gotten a great bailout short selling inside the family. My guess it that this, or catching some other gain short selling is somewhat common.

[patientrenter]

[quote=UCGal]It’s very frustrating.
There’s moral hazard everywhere around us.
There are no consequences for bad decisions.

From the banks who gave out crappy loans to the buyers who bought more than they could reasonably afford. Neither side is paying the price for these stupid transactions.[/quote]

I am afraid that the obvious is true:

– Most of the top Wall Streeters kept their ill-gotten gains, and are still doing very nicely compared to the rest of us

– Many homeowners who did the most irresponsible things – and who drove up the price of houses for the rest of us so that we had to remain renters – are getting lots of free breaks now that are worth far more than the average renter gets.

[And, yes, jp, I work inside FIRE, and am in the top 1%, but I know what happened, and I know it is unfair and that the unfairness is unnecessary. Good article at http://dealbook.nytimes.com/2011/11/30/on-wall-street-some-insiders-express-quiet-outrage/%5D

[sdduuuude]

[quote=UCGal]It’s very frustrating.
There’s moral hazard everywhere around us.
There are no consequences for bad decisions.

From the banks who gave out crappy loans to the buyers who bought more than they could reasonably afford. Neither side is paying the price for these stupid transactions.[/quote]

I’m so right there with you.

[pencilneck]

“From the banks who gave out crappy loans to the buyers who bought more than they could reasonably afford. Neither side is paying the price for these stupid transactions.”

I think a whole lot of buyers who bought more than they could reasonably afford would probably disagree with you. In San Diego alone foreclosures are still nearly 1,000 a month.

And notices of default are no fun either. I’m not really defending people that buy stuff they can’t afford. But I think its a leap to say that, as a whole, they aren’t suffering.

[UCGal]

[quote=pencilneck]”From the banks who gave out crappy loans to the buyers who bought more than they could reasonably afford. Neither side is paying the price for these stupid transactions.”

I think a whole lot of buyers who bought more than they could reasonably afford would probably disagree with you. In San Diego alone foreclosures are still nearly 1,000 a month.

And notices of default are no fun either. I’m not really defending people that buy stuff they can’t afford. But I think its a leap to say that they aren’t suffering.[/quote]
I’m not saying they’re having fun. I’m sure it’s incredibly stressful.

It’s also what they signed up for. They agreed to pay monthly payments on a mortgage in return for getting to live in a house – and if they’re lucky and stay there long enough – they’ll have a home that’s mortgage free after 30 years. If they don’t make the payments, they agreed that the house could be foreclosed. That’s the basic mortgage loan contract.

Under the current system, the foreclosure process is extended. Sure it’s stressful for the borrower to have to deal with the bank who regularly loses their paperwork… to have to submit documents to try to get a loan mod… But if they jump through the hoops – they can get a pretty long “free rent” ride. In some cases years of no mortgage payments and no rent. They benefit in a real, tangible way. This should offset some of the suffering and stress.

If they’re smart – they’re banking the money they would have put towards rent/mortgage so that they have a nest egg when they finally do get their walking papers. But we hear about the folks who a) were kicked out and b) had no savings or anyplace to go.

I feel bad for the folks who lost their jobs – and that kicked them into foreclosure. But they still should be foreclosed on if they can’t make the payments. Or they should short sell. The system where we’re supposed to feel like people living for free, for extended periods of time are victims never made sense to me.

Banks should absolutely have the right to foreclose. They also should do the proper paperwork and do it legally. And borrowers should have the right to get a few months free rent (minimum 4 months from last payment to trustee sale) if they can’t or won’t pay the mortgage.

[bearishgurl]

Agree, pencilneck. The ones in quiet desperation have 1-3 yo defaults on their record and their credit report is pockmarked by 30/60/90/120-day lates on one or more notes secured by trust deeds (by possibly multiple creditors).

I think having an SS or foreclosure on one’s record and having one’s FICO score fall by 150-300 pts is due comeuppance for being stupid (simply buying at the peak) but not necessarily enough for extracting equity. As for whether this is enough “punishment,” ask yourself if YOU would want to be in the position right now of having only ridiculous credit terms offered to you, if any at a time of tight money, a time where UI benefits of 99 weeks are now history and a time when food and gas combined are at all-time highs?

Most of the FB’s who extracted equity during the “millenium boom” (esp copious amts) and have defaulted since 2007 have now been foreclosed upon.

The ones who accepted mods in order to stay in their properties are trapped. The only way they could qualify for the trial mod was to have a steady source of income that is not already attached by garnishment. Even if these “owners” lose their jobs and/or are offered better jobs somewhere else in the coming years, they can’t move without selling short and taking a big hit on their credit report. If their mod agreement even allows them to rent their properties out, it is such a negative cash flow every month for them to do so that it doesn’t make sense to take the better job elsewhere!

I think a lot of underwater “owners” who accepted mod terms in the past couple of years did so out of FEAR. Their credit was already shot due to late payments and/or default so a foreclosure wouldn’t have made that much difference on their credit report, if any. This fear lies not with singles or older/retired underwater owners but with parents-of-minor-children underwater owners. Many of these parents absolutely REFUSE to send their children anywhere else to public school but the one the they are currently attending in the area they purchased their white elephant (that they could never afford in the first place). This fear is irrational, IMO, and is prolonging their pain and preventing them from moving on with their lives and allowing their credit scores to eventually heal with time.

Perhaps they think they can “hang” long enough with their “mod programs” until their kids graduate. If their kids are currently in HS, this might be doable. But I don’t think agreeing to these loan mods is either feasible or even smart for the long haul. These parents who do so are shortsighted as the older their children get, the more expensive they become.

From this blog, I’ve come to the conclusion that the vast majority of Gen X and younger parents have extremely high expectations in that the majority of them seek to control their families’ environment to the nth degree. This phenomenon is prevalent regardless of the parents’ current capacity to pay for it and the current demand in the local economy for their services.

These FB parents are simply prostrating themselves in the name of their children but at the expense of their own lives and future … just to maintain this illusion of “control” over their families’ “environment.” Not only does this place their children at a distinct disadvantage in coping with the everyday world when they go to work and move out on their own, it causes the parents to have to pay PITI (+ HOA dues, if applic) into a bottomless pit into eternity when they could no doubt rent for far less money every month and put the difference towards college or retirement funds.

In SD County, unchecked urban sprawl in the last 10-15 years is partly to blame for this grandiose mindset of homebuyers now in the prime age for purchasing a home (25-45). In attempting to outbid each other for the “new-construction crap in the stix,” they helped and are still helping (along with loose-lending practices of late) to screw themselves out of having a RE market to choose from that is in line with fundamentals.

Even though painting these families somewhat as “victims,” Elizabeth Warren stated the above so eloquently in this (reposted) video of her 2007 speech at UCB, where she refers to this phenom in SD (SEH). Start listening at 40.00 minutes in:

Parents of earlier generations didn’t have all of this crap in the stix crammed together like sardines to choose from when deciding where to raise their families, lol ….

[end of rant]

[jameswenn]

Bearishgirl

Guilty as charged. My wife being a public school teacher has to have control over our kids education. So she unilaterally decided to enroll our kids in private schools and i’ve been paying for it for the past decade and i don’t have much of a say in the matter even though we go through the motions and act like i do.

Yes I can pay the cash each month, but I can’t really afford it. Due to the expense i’m not contributing much to our savings or my 401K as well as the time lost from the commute of the children that’s on top of the regular work commute.

I’ve talked to to other parents at the schools and i’m not alone. We all seem to have this irrational fear of the public school system as well as a need to control our children’s environment.

[bearishgurl]

[quote=jameswenn]Bearishgirl

Guilty as charged. My wife being a public school teacher has to have control over our kids education. So she unilaterally decided to enroll our kids in private schools and i’ve been paying for it for the past decade and i don’t have much of a say in the matter even though we go through the motions and act like i do.

Yes I can pay the cash each month, but I can’t really afford it. Due to the expense i’m not contributing much to our savings or my 401K as well as the time lost from the commute of the children that’s on top of the regular work commute.

I’ve talked to to other parents at the schools and i’m not alone. We all seem to have this irrational fear of the public school system as well as a need to control our children’s environment.[/quote]

If this is the case, jameswenn, then you surely can live wherever you wish, perhaps even in an area that would save time on your commute to private school and even your worksites! Congratulations! YOU don’t have to stand in line to overbid on an overpriced, underbuilt traincar sandwiched between two other “mcmansion” traincars with 3 feet to spare on each side so you can hear your neighbors’ toilets flush, just to live in a particular public school attendance area. For the same $$ or LESS, you can get a nice 1/2 AC+ spread with room to hook up your in-laws RV to utilities when they visit and an 85 yo tree to hang a tire swing on! Fvck exorbitant MR . . . nearly all of it is going to schools you’re NOT using, anyway!! If you already own and live in MR/HOA-encumbered (gated??) exurbia in lizardland, list your property NOW and GET OUT if you can do so above water! Put your kids in after-school tutoring/activities offered by their “private” campus until you or your spouse can pick them up (to assuage her “control issues”). This would be cheaper than exorbitant HOA/MR and extra gas daily for yours and the kids’ commute.

I’m sorry your spouse has such a dim view of public schools. She must be assigned to one of the (NCLB) underperforming campuses. Perhaps when she gets a little more seniority under her belt (15 yrs+?), she will be able to put her name in with her district for a better assignment. Every educator’s gotta pay their dues first. These “dues-paying” years are a “package deal” along with tenure and a 100% defined benefit pension after 30 yrs svc. You must know that this is how union contracts work. ;=]

[bearishgurl]

[quote=jameswenn] . . . I’ve talked to to other parents at the schools and i’m not alone. We all seem to have this irrational fear of the public school system as well as a need to control our children’s environment.[/quote]

jameswenn, believe it or not, every … single … public … HS in SD County graduates hundreds of seniors every year, the majority going on to UC, CSU, private and out-of-state universities. A minority will begin college in their local community college campuses (a higher percentage of students may first be enrolling in CC since CA public college fees have risen so much in recent years).

The entire function of a public HS in CA is to ensure students fulfill the requirements for graduation and the A-G requirements for getting accepted into a CA public college. EVERY parent and student in EVERY public HS has the SAME goal. The teaching standards are ALL the SAME in EVERY CA HS. It’s the law!

Parents overtly impose their OWN irrational fears on their students when they seek to control every facet of their student’s environment and existence, IMHO.

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