Viral Nature of Walking Away

[davelj]

[quote=sdduuuude][quote=davelj]Also, remember that most of these mortgages are ultimately held by securitization trusts (MBS) … So, servicers are losing their asses.[/quote]

Thanks for your patience on this and explaining again. I admit I haven’t followed this topic well in the past.

So, let me get this straight. Lets say I own an MBS with 100 mortgages in it. I own it. I get money from the payments, but I lose a fee to the servicer who processes the checks, sends out payment coupons to the borrower, etc.

Don’t I as the owner make the decision to foreclose?

Doesn’t the servicer have to live up to some quality standard of how quickly they process foreclosures ?[/quote]

You’re basically right, but… a couple of inherent problems. First, the ownership is dispersed. So, there is a trust document that “governs” what goes on inside the MBS under different circumstances (a document the owners signed off on). So, the servicer looks to the trust document for what they’re supposed to do – and how they get reimbursed – when a default occurs. But… as with all contracts, there’s inherently a lot of leeway. And in most documents there’s some kind of language that leaves it up to the servicer’s discretion to undertake actions that “maximize the long-term value” of the underlying collateral.

So, if I’m a servicer and I’m “only” collecting my 50 bps and I’ve just had to double my staff just to service the folks who are “late,” but not defaulting or in foreclosure… and THEN I have to deal with the foreclosures – where theoretically I’m going to get reimbursed for these “over and above” costs, but that’s after the fact (I’ve gotta lay out the cash first) – then you can see how the servicing end of things gets clogged up. Just as the lenders underestimated future losses, the servicers underestimated the true costs of servicing these loans. And while they’ll get reimbursed for most of the foreclosure-related costs they incur, it still engenders a cashflow issue. So, the servicers are probably losing money on their “core” servicing business AND they have a cashflow problem related to servicing the foreclosures.

I think you can see how that would lead to some of the problems we’re seeing today.

[scaredyclassic]

forget morals or ethics; what does the word “promise” mean in the context of a document that has a default provision? is it really that clear?

[scaredyclassic]

forget morals or ethics; what does the word “promise” mean in the context of a document that has a default provision? is it really that clear?

[scaredyclassic]

forget morals or ethics; what does the word “promise” mean in the context of a document that has a default provision? is it really that clear?

[scaredyclassic]

forget morals or ethics; what does the word “promise” mean in the context of a document that has a default provision? is it really that clear?

[scaredyclassic]

forget morals or ethics; what does the word “promise” mean in the context of a document that has a default provision? is it really that clear?

[bearishgurl]

scaredy and others,

I’m sure you’re all aware that in CA, a buyer of property getting a loan signs a “promissory note” on behalf of the beneficiary lender and then the lender’s “trust deed” on that note. This “trust deed” is recorded with the County Recorder and is the only security instrument the lender has to collect the note. This instrument entitles the lender to a timely right of non-judicial foreclosure.

On recourse paper, the lender is entitled to sue the trustor for any deficiencies it suffered after foreclosure and reselling the property. The vast majority don’t, because they don’t feel they can collect a judgment, so they write the debt off and issue an IRS Form 1099 showing the deficiency amount as “phantom income” to the defaulting trustors.

There is no “morality” or “promise” involved here. The transaction is purely business. The trustor DID sign a “Promissory” Note but that note is protected by the security instrument they also signed. If the lender decides not to avail themselves of this protection, as is their right, one way or the other, then they ran up their own deficiency damages.

This may be one reason why the IRS and FTC are temporarily suspending counting the 1099’s issued by the REO lenders as “phantom income” toward the defaulting taxpayer. I don’t work in RE at present. I have done two short sales, one in ’90 and one in ’92. Both of these sellers got 1099’s and had to claim the “phantom” income on their tax returns.

It is the lenders who are allowing the trustors to indefinitely “squat” and run up their own deficiencies as a consequence. We are all paying them to do this with the government bailout $$. That’s what’s so wrong about this situation.

Morality has nothing to do with it. If you give people cash, they will take it. If you give people free housing, they will take it. Esp. if they are broke and have nowhere to move their families.

[bearishgurl]

scaredy and others,

I’m sure you’re all aware that in CA, a buyer of property getting a loan signs a “promissory note” on behalf of the beneficiary lender and then the lender’s “trust deed” on that note. This “trust deed” is recorded with the County Recorder and is the only security instrument the lender has to collect the note. This instrument entitles the lender to a timely right of non-judicial foreclosure.

On recourse paper, the lender is entitled to sue the trustor for any deficiencies it suffered after foreclosure and reselling the property. The vast majority don’t, because they don’t feel they can collect a judgment, so they write the debt off and issue an IRS Form 1099 showing the deficiency amount as “phantom income” to the defaulting trustors.

There is no “morality” or “promise” involved here. The transaction is purely business. The trustor DID sign a “Promissory” Note but that note is protected by the security instrument they also signed. If the lender decides not to avail themselves of this protection, as is their right, one way or the other, then they ran up their own deficiency damages.

This may be one reason why the IRS and FTC are temporarily suspending counting the 1099’s issued by the REO lenders as “phantom income” toward the defaulting taxpayer. I don’t work in RE at present. I have done two short sales, one in ’90 and one in ’92. Both of these sellers got 1099’s and had to claim the “phantom” income on their tax returns.

It is the lenders who are allowing the trustors to indefinitely “squat” and run up their own deficiencies as a consequence. We are all paying them to do this with the government bailout $$. That’s what’s so wrong about this situation.

Morality has nothing to do with it. If you give people cash, they will take it. If you give people free housing, they will take it. Esp. if they are broke and have nowhere to move their families.

[bearishgurl]

scaredy and others,

I’m sure you’re all aware that in CA, a buyer of property getting a loan signs a “promissory note” on behalf of the beneficiary lender and then the lender’s “trust deed” on that note. This “trust deed” is recorded with the County Recorder and is the only security instrument the lender has to collect the note. This instrument entitles the lender to a timely right of non-judicial foreclosure.

On recourse paper, the lender is entitled to sue the trustor for any deficiencies it suffered after foreclosure and reselling the property. The vast majority don’t, because they don’t feel they can collect a judgment, so they write the debt off and issue an IRS Form 1099 showing the deficiency amount as “phantom income” to the defaulting trustors.

There is no “morality” or “promise” involved here. The transaction is purely business. The trustor DID sign a “Promissory” Note but that note is protected by the security instrument they also signed. If the lender decides not to avail themselves of this protection, as is their right, one way or the other, then they ran up their own deficiency damages.

This may be one reason why the IRS and FTC are temporarily suspending counting the 1099’s issued by the REO lenders as “phantom income” toward the defaulting taxpayer. I don’t work in RE at present. I have done two short sales, one in ’90 and one in ’92. Both of these sellers got 1099’s and had to claim the “phantom” income on their tax returns.

It is the lenders who are allowing the trustors to indefinitely “squat” and run up their own deficiencies as a consequence. We are all paying them to do this with the government bailout $$. That’s what’s so wrong about this situation.

Morality has nothing to do with it. If you give people cash, they will take it. If you give people free housing, they will take it. Esp. if they are broke and have nowhere to move their families.

[bearishgurl]

scaredy and others,

I’m sure you’re all aware that in CA, a buyer of property getting a loan signs a “promissory note” on behalf of the beneficiary lender and then the lender’s “trust deed” on that note. This “trust deed” is recorded with the County Recorder and is the only security instrument the lender has to collect the note. This instrument entitles the lender to a timely right of non-judicial foreclosure.

On recourse paper, the lender is entitled to sue the trustor for any deficiencies it suffered after foreclosure and reselling the property. The vast majority don’t, because they don’t feel they can collect a judgment, so they write the debt off and issue an IRS Form 1099 showing the deficiency amount as “phantom income” to the defaulting trustors.

There is no “morality” or “promise” involved here. The transaction is purely business. The trustor DID sign a “Promissory” Note but that note is protected by the security instrument they also signed. If the lender decides not to avail themselves of this protection, as is their right, one way or the other, then they ran up their own deficiency damages.

This may be one reason why the IRS and FTC are temporarily suspending counting the 1099’s issued by the REO lenders as “phantom income” toward the defaulting taxpayer. I don’t work in RE at present. I have done two short sales, one in ’90 and one in ’92. Both of these sellers got 1099’s and had to claim the “phantom” income on their tax returns.

It is the lenders who are allowing the trustors to indefinitely “squat” and run up their own deficiencies as a consequence. We are all paying them to do this with the government bailout $$. That’s what’s so wrong about this situation.

Morality has nothing to do with it. If you give people cash, they will take it. If you give people free housing, they will take it. Esp. if they are broke and have nowhere to move their families.

[bearishgurl]

scaredy and others,

I’m sure you’re all aware that in CA, a buyer of property getting a loan signs a “promissory note” on behalf of the beneficiary lender and then the lender’s “trust deed” on that note. This “trust deed” is recorded with the County Recorder and is the only security instrument the lender has to collect the note. This instrument entitles the lender to a timely right of non-judicial foreclosure.

On recourse paper, the lender is entitled to sue the trustor for any deficiencies it suffered after foreclosure and reselling the property. The vast majority don’t, because they don’t feel they can collect a judgment, so they write the debt off and issue an IRS Form 1099 showing the deficiency amount as “phantom income” to the defaulting trustors.

There is no “morality” or “promise” involved here. The transaction is purely business. The trustor DID sign a “Promissory” Note but that note is protected by the security instrument they also signed. If the lender decides not to avail themselves of this protection, as is their right, one way or the other, then they ran up their own deficiency damages.

This may be one reason why the IRS and FTC are temporarily suspending counting the 1099’s issued by the REO lenders as “phantom income” toward the defaulting taxpayer. I don’t work in RE at present. I have done two short sales, one in ’90 and one in ’92. Both of these sellers got 1099’s and had to claim the “phantom” income on their tax returns.

It is the lenders who are allowing the trustors to indefinitely “squat” and run up their own deficiencies as a consequence. We are all paying them to do this with the government bailout $$. That’s what’s so wrong about this situation.

Morality has nothing to do with it. If you give people cash, they will take it. If you give people free housing, they will take it. Esp. if they are broke and have nowhere to move their families.

[UCGal]

To make matters worse – original purchase money loans (first and seconds trust deeds gotten at time of purchase) are NON RECOURSE in CA. Only refi’s and HELOCS that occur after the purchase are recourse.

[UCGal]

To make matters worse – original purchase money loans (first and seconds trust deeds gotten at time of purchase) are NON RECOURSE in CA. Only refi’s and HELOCS that occur after the purchase are recourse.

[UCGal]

To make matters worse – original purchase money loans (first and seconds trust deeds gotten at time of purchase) are NON RECOURSE in CA. Only refi’s and HELOCS that occur after the purchase are recourse.

[UCGal]

To make matters worse – original purchase money loans (first and seconds trust deeds gotten at time of purchase) are NON RECOURSE in CA. Only refi’s and HELOCS that occur after the purchase are recourse.

[Author]

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