Principal reduction: what’s the advantage?

[bearishgurl]

[quote=HLS]Harvey,
Y’all don’t get it.It’s not common sense and it is idiotic.

There is no reason to reduce principal and take a loss when the interest rate can be reduced and lower the payment.
‘homeowner’ has to live somewhere. If you lower their payment and they still cant afford it, they have no business staying there.

There is no reason to reduce principal, It’s completely unfair to others who have struggled to make their payments.
I’m convinced that idiots come up with these programs.

I understand foreclosure but it rarely has higher costs
than principal reduction.[/quote]Totally agree, HLS. Most of these clowns have already removed their (“fake” at the time) equity from these properties. Why should they get more equity at taxpayers’ expense, ESPecially whilst they’re still driving their late-model luxury vehicles (up to 2 per household PLUS boat/MC/jetski, etc) purchased with their “fake” equity.

I’m aware of several homeowners who have taken out $200K to $600K in “equity” from their homes in the past ~13 years and are still living in them today! This group is not entitled to any more …. ESPecially if they have failed to maintain the property with all their ill-gotten spoils and instead let it go to waste! As far as I’m concerned, this group (which varies wildly in size by zip code) should have been foreclosed on a long time ago but are instead (in accordance with CA CC section 2924.10) “supposedly” paying on ridiculous HAMP mods at ~2% for 40 years. These mods provide for their lender(s) to eventually recoup most or all of their back interest owed as well as their prior NOD/NOS trustee fees. It’s as it should be, ASSUMING that these clowns are actually timely making the new payments (until they are 75 or 80 yrs old?). If they can’t, or decide it is no longer worth it to do so, prompt (non-judicial) FORECLOSURE IS the remedy! At that point, CCC sec. 2924.10 will no longer apply in their case.

HLS, do you know any of the backstory on why the Legislature decided to extend CA Civil Code section 2924.10 again until 1/1/18? It was due to expire on 1/1/14 (the CA RE market had substantially improved by that time), yet they extended it another 4 years! I didn’t follow that development but just checked on it last week:

see: http://piggington.com/not_house_proud#comment-266463

This move by the Legislature totally disgusts me and there was absolutely no reason whatsoever for it by 1/1/14.

[bearishgurl]

For the record, I’m still surrounded by 35-50 SFR’s in various states of “shadow inventory” whilst the “real, listed as `traditional sale'” local inventory is much, much less than that. These “shadow inventory” homes have NOD’s filed against them which have never been acted upon (why??), are inhabited by “mod-paying homedebtors” with little to no income, are property-tax delinquent awaiting the auction list (some of these also grossly over-mortgaged) and/or have been listed (off and on) as “contingent” short sales for the better part of the last three years. The latter group is in the worst shape, by far.

How is a lender going to qualify a homedebtor for a mod if they have no income and/or they are an absentee landlord collecting rent? And if they’re not qualified, don’t these lenders know the phone number of ReconTrust? It should be on their speed dial but if not, I’ll be happy to give it to them :=0

[spdrun]

Remember those are 33,000 homes out of 6 million underwater, and this is a “last ditch” program. Past statistics being what they were, maybe 3,300 homeowners will actually get the writedown.

This is a chance for FHFA being seen as doing something while then moving forward on the other homes. And also buying some Dummyquack votes.

[bearishgurl]

[quote=spdrun]Remember those are 33,000 homes out of 6 million underwater, and this is a “last ditch” program. Past statistics being what they were, maybe 3,300 homeowners will actually get the writedown.

This is a chance for FHFA being seen as doing something while then moving forward on the other homes. And also buying some Dummyquack votes.[/quote]Yeah, honestly, when I perused over the program yesterday, the qualifications for it did not appear to fit the profile of the CA homedebtor/longtime scammer. FHFA’s $250K debt ceiling to qualify for the program will eliminate this group in CA. This is because I feel that in order to have that low of a mortgage balance today, the homeowner who took “cash out” (typically $50K to $250K in one or more transactions) during the “go-go exotic-mortgage boom years” would have had to have already owned their homes for a minimum of 15 years PRIOR to taking the cash out (purchased it in the early ’90’s, or prior).

This (longtime homeowner) group typically didn’t need to take any cash out with horrific terms because they didn’t have large mortgages to begin with, they were already well-established and had paid on their homes for ~15+ years. Those in this group who DID take cash out typically took out HELOCs in the ’90’s (when they became “mainstream”) to do home improvement projects and promptly paid them back less than one year later.

The scamming homedebtors I’m discussing here used their “fake” home equity for cars, vacations, jewelry, college tuition and to generally continue living way above their means for as long as possible. In addition, many of them “bought” homes that were way out of their league because they were able to finance them at 95-100% LTV at the time, using 1-3 purchase money loans … which undoubtedly came back to haunt them in just a few years.

The 33K will come from other states where residential RE costs much less than CA and where the typical homedebtor took out $25-50K in cash in recent years (or just bought their home at the “wrong” time and paid too much for it). And, as you said here, like several failed programs before this, this new program may very well just be election year “lip service” to appear to be helping the “little people” when it ends up only helping ~10% of its intended goal with the current POTUS on his way out.

Of course, we won’t know until a new president is installed because the first notification letters from lenders will not go out until after 10/26/16.

[bearishgurl]

I also noticed that there was a “warning” in the wording to not begin defaulting on one’s mortgage(s) now that this program has been announced (4/14/16). The applicant must have been “in default” on 3/1/16 to qualify for the program.

This is to prevent scamming “strategic defaulters” which happened en masse AFTER the announcements of HAMP I and II.

If Frannie hasn’t learned anything but this since then, then that is at least something :=0

[Anonymous]

[quote=HLS]Harvey,
Y’all don’t get it.It’s not common sense and it is idiotic.

There is no reason to reduce principal and take a loss when the interest rate can be reduced and lower the payment.
‘homeowner’ has to live somewhere. If you lower their payment and they still cant afford it, they have no business staying there.

There is no reason to reduce principal, It’s completely unfair to others who have struggled to make their payments.
I’m convinced that idiots come up with these programs.

I understand foreclosure but it rarely has higher costs
than principal reduction.[/quote]

LOL “It’s not fair!”

Banks, the GSEs, and even the government are not in the business of punishing the irresponsible.

Let’s look at the reality:

– Take a homeowner who owes $500K on a property that is now worth $200K

– Say their rate is 8% now, 30 year note. Their payment is about $3700

– HLS says to just lower their rate. Ok let’s reduce to 4.5%; payment is now about $2500

– Of course they are still making payments for 30 years on an investment that will see little or no return. Their balance sheet is still $300K in the red.

“But your payment is lower!” Mortgage hustlers and car salesmen will fool some folks with this gimmick, but there are likely many thousands of underwater property owners who will actually do the math.

The math says this:

– They can buy the $200K property or an equivalent, finance at market rates for only $1000/month. Much lower payment and investment upside.

– Even if they can’t or don’t buy, renting an equivalent property would cost much less than the “reduced” payment of $2500 that HLS is offering. Same roof over their head for much less per month.

There’s no reason for anybody to take a reduced rate without a principal reduction. Because owners in this situation have much better alternatives.

Principal reduction is the simplest and lowest cost alternative. If you want to claim otherwise: show us the numbers.

[spdrun]

I disagree. If people know that they will be foreclosed on if they don’t pay their loans (without a damn good reason), they’ll be less likely to take overly high loans in the first place.

Banks are not in the business of providing comfy places to live to trailer trash. 2008 was as much a fault of the losers who took the loans as of the banks and Fannie.

Lending standards were about right in the 80s. If you couldn’t show 20% down and income or assets, no deealio.

[bearishgurl]

[quote=harvey] . . . There’s no reason for anybody to take a reduced rate without a principal reduction. Because owners in this situation have much better alternatives . . . [/quote]

Ummm, no harvey, “owners in this situation” DON’T “have much better alternatives.” Many of them have been “scamming the system” for so many years now that their credit is beyond shot!

This group will be extremely lucky to find a landlord who will take them in the tight CA coastal market but that is not my problem.

It is LENDERS who should be calling the shots here, NOT the recalcitrant, slovenly fools who have borrowed themselves into oblivion and will now sign up for any program that promises to “save them” from their stupidity (and, of COURSE, “forgive” the debt they already spent for their vehicles and vacations, etc).

FORECLOSURE is the answer, so the rest of us, who paid our mortgages on time all these years, no matter how difficult it was for us, can finally recover from the “great recession.” Some of us need a revitalized neighborhood with a higher calibur of more well-heeled and credit-worthy homeowner-borrowers to come in and take over these monstrosities at any price and begin rehabbing them after being let go to waste by longtime squatting “hopeful short-sellers.” Yes, all-cash purchasing flipper teams are also welcome. Bring on the foreclosures!

[bearishgurl]

[quote=spdrun]I disagree. If people know that they will be foreclosed on if they don’t pay their loans (without a damn good reason), they’ll be less likely to take overly high loans in the first place.

Banks are not in the business of providing comfy places to live to trailer trash. 2008 was as much a fault of the losers who took the loans as of the banks and Fannie.

Lending standards were about right in the 80s. If you couldn’t show 20% down and income or assets, no deealio.[/quote]Agree, spd. This is a very apt description of the problem in CA.

Fortunately, a borrower can no longer choose to take a “overly high loan.” The lender they applied to will tell them how much they qualify to borrow and this is how it should have been all along.

All this “trailer trash” can do what they do best after foreclosure … that is, go find a well-used trailer to buy and a place to park it and skirt it. OR, just go rent a trailer that someone abandoned and left in an established trailer park. Um, unfortunately, for them, that won’t likely be in a CA coastal county but this isn’t my problem, either.

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