Why not fake default to get a lower rate

[DaCounselor]

Ditto what SDR said. You are not likely to get a loan mod at this time without full documentation, so it will be difficult if not impossible to truly “fake out” the servicer/lender.

That being said, it is conceivable that we may see some changes in the future mod protocol if enough borrowers with ability decide to play chicken with their servicer/lender. As an example, consider a borrower who financed 100% of his $800K home, the home comps at $560K, and he has the ability to continue servicing his $800K mortgage. The borrower gives the servicer/lender an option – either lock me into a low fixed rate and/or write down my loan balance to the comp level, or I will go into default. What will the servicer/lender do if this type of proposition becomes commonplace? I submit that it very well may be in the financial interest of the lender to capitulate as opposed to taking on an REO.

Regarding 80/20 deals, there has already been cyber-chatter regarding those with ability to pay playing chicken with the piggyback lender by simply stopping payments and forcing the lender to react. If the piggyback lender has essentially an unsecured loan due to reduction of home value, why would they foreclose? The implication is that the lender will accept pennies on the dollar in a short-pay deal just to get something. Again, the pre-requisite is that the borrower is geared-up for a game of chicken, is prepared to go into default, and is even prepared to go into default on their first mortgage to create the threat of a complete wipe-out of the piggyback loan.

In the first example above, it will certainly require financial disclosures as the lender needs to confirm ability to pay. In the 80/20 situation, there is arguably no need for financial disclosure, much as the lender would like it, because the proposition is take it or leave it regardless of ability.

I expect many future examples regarding the intracacies of negotiations with servicers/lenders in this regard. We are already seeing templates for how to address particular situations and more of the same to come.

[cr]

I am aware that there is a moral piece to this… I am only concerned with the business side of the equation.

Sounds like the problem that got people into the mortgage mess.

Ditto what SDR said. You are not likely to get a loan mod at this time without full documentation.

Ironic isn’t it? Only after the mess is made are the rules enforced.

[cr]

I am aware that there is a moral piece to this… I am only concerned with the business side of the equation.

Sounds like the problem that got people into the mortgage mess.

Ditto what SDR said. You are not likely to get a loan mod at this time without full documentation.

Ironic isn’t it? Only after the mess is made are the rules enforced.

[cr]

I am aware that there is a moral piece to this… I am only concerned with the business side of the equation.

Sounds like the problem that got people into the mortgage mess.

Ditto what SDR said. You are not likely to get a loan mod at this time without full documentation.

Ironic isn’t it? Only after the mess is made are the rules enforced.

[cr]

I am aware that there is a moral piece to this… I am only concerned with the business side of the equation.

Sounds like the problem that got people into the mortgage mess.

Ditto what SDR said. You are not likely to get a loan mod at this time without full documentation.

Ironic isn’t it? Only after the mess is made are the rules enforced.

[cr]

I am aware that there is a moral piece to this… I am only concerned with the business side of the equation.

Sounds like the problem that got people into the mortgage mess.

Ditto what SDR said. You are not likely to get a loan mod at this time without full documentation.

Ironic isn’t it? Only after the mess is made are the rules enforced.

[patientlywaiting]

I was thinking the same thing, especially in regard to short-sales.

If short-sales were too easy to get approved, then everyone whose equity is lower than the loan balance would want one, regardless of their financial situation. Even if you could afford it, you should short-sell to your wife, brother, children, girlfriend, trust fund, or whatever.

In a short-sale, the seller still controls who gets to buy the property.

I guess that if you don’t care about your credit, there’s no harm falling a few months behind and telling your lender that you “can’t afford” the payments anymore. Then see if the lender will give you a deal.

“Affording” a mortgage is nebulous enough that nobody could accuse of mortgage fraud.

[patientlywaiting]

I was thinking the same thing, especially in regard to short-sales.

If short-sales were too easy to get approved, then everyone whose equity is lower than the loan balance would want one, regardless of their financial situation. Even if you could afford it, you should short-sell to your wife, brother, children, girlfriend, trust fund, or whatever.

In a short-sale, the seller still controls who gets to buy the property.

I guess that if you don’t care about your credit, there’s no harm falling a few months behind and telling your lender that you “can’t afford” the payments anymore. Then see if the lender will give you a deal.

“Affording” a mortgage is nebulous enough that nobody could accuse of mortgage fraud.

[patientlywaiting]

I was thinking the same thing, especially in regard to short-sales.

If short-sales were too easy to get approved, then everyone whose equity is lower than the loan balance would want one, regardless of their financial situation. Even if you could afford it, you should short-sell to your wife, brother, children, girlfriend, trust fund, or whatever.

In a short-sale, the seller still controls who gets to buy the property.

I guess that if you don’t care about your credit, there’s no harm falling a few months behind and telling your lender that you “can’t afford” the payments anymore. Then see if the lender will give you a deal.

“Affording” a mortgage is nebulous enough that nobody could accuse of mortgage fraud.

[patientlywaiting]

I was thinking the same thing, especially in regard to short-sales.

If short-sales were too easy to get approved, then everyone whose equity is lower than the loan balance would want one, regardless of their financial situation. Even if you could afford it, you should short-sell to your wife, brother, children, girlfriend, trust fund, or whatever.

In a short-sale, the seller still controls who gets to buy the property.

I guess that if you don’t care about your credit, there’s no harm falling a few months behind and telling your lender that you “can’t afford” the payments anymore. Then see if the lender will give you a deal.

“Affording” a mortgage is nebulous enough that nobody could accuse of mortgage fraud.

[patientlywaiting]

I was thinking the same thing, especially in regard to short-sales.

If short-sales were too easy to get approved, then everyone whose equity is lower than the loan balance would want one, regardless of their financial situation. Even if you could afford it, you should short-sell to your wife, brother, children, girlfriend, trust fund, or whatever.

In a short-sale, the seller still controls who gets to buy the property.

I guess that if you don’t care about your credit, there’s no harm falling a few months behind and telling your lender that you “can’t afford” the payments anymore. Then see if the lender will give you a deal.

“Affording” a mortgage is nebulous enough that nobody could accuse of mortgage fraud.

[23109VC]

this is such interesting stuff. you can see how this is all going to go downhill.

if someone has an 80/20….and has NO equity…and then just decides to “default” and stop paying… what are the banks really going to do? take the house and sell it at a loss?

if you tell them you can’t afford to pay…will they negotiate with you for new terms?

or negotiate for a new/lower rate? i guess for many peole it will depend HOW bad they are underwater, can they afford to keep the house at the “new” price/rate, and how bad will it FUBAR their credit/do they care?

suppose you bought a house at 500k. now it’s worth 350k. you are 150k upside down. you have a rate that is so so on your first, and sucks on a second. assume they aren’t ARMS but 30 year fixeds… you could call up the lender and just say, the house is worth less, I don’t want to eat the loss, so I’m gonna walk and let you hae the 150k loss. unless you sweeten the pot. just basically extort it out of them.

what are they going to do? if you have never refi-d your house..then you are perfectly able to walk away, mail them the keys, and have no repurcussions, other than your credit being tanked. if you tell the lender, you want the second wiped out, or you want the interest rate reduced…

hell, figure out what their REAL loss will be if you walk, and then extort better terms out of them that are better for YOU but NOT as bad as the defalt scenario, and heck, maye they would take it?

anyone think that the banks would concede to this kind of commando/in your face/I’m gonna screw you if you don’t sweeten the pot kind of attitude or would they say F you, get out, we’ll just foreclose..even though they will take a bath if they foreclose on the house???

with the huge number of 100% financed houses…there are PILES of peopel with LITERALLy no equity in a house, and mentally, nothing to lose by walking away. when you put down 20%, walking away hurts b/c you lost your investment. even if the house depreciated a lot and that 20% isn’t really there anymore…it still feels like you are losing your money to walk away from the house. BUT if you ptu down ZERO dollars, and the house has depreciated 150k or more…some large amount, a lot of people EVEN THOUGHT THEY ARE FINANCIALLY ABLE TO MAKE THE PAYMENTS may just saw screw it, and walk away. they might rather just eat the foreclosure, and let hte bank have the house and not have the “loss” to deal with. they’ll go rent something, wipe their hands of the house, and figure since i dind’ tput anythign down, i din’d tlose anythign..in fact, many of them might feel that while walking away is morally a bad thing, that they are making the wisest financial move they can as the house is SO UNDERWATER that keeping it is financially unwise….

smart, educated, and financially solvent people may start walking from their houses b/c they think it is the best thing to do… when that starts happening…when you have the ARM resets who should never have bought in the first place walking awawy, you have one problem..but when the people who COULD afford are also walking away..then you’ll have another wave of problems… and if everyone starts doing it, there will be less and less psychological “stress” for getting foreclosed on.. it will be “no big deal” to people if/when it gets so commonplace.

[23109VC]

this is such interesting stuff. you can see how this is all going to go downhill.

if someone has an 80/20….and has NO equity…and then just decides to “default” and stop paying… what are the banks really going to do? take the house and sell it at a loss?

if you tell them you can’t afford to pay…will they negotiate with you for new terms?

or negotiate for a new/lower rate? i guess for many peole it will depend HOW bad they are underwater, can they afford to keep the house at the “new” price/rate, and how bad will it FUBAR their credit/do they care?

suppose you bought a house at 500k. now it’s worth 350k. you are 150k upside down. you have a rate that is so so on your first, and sucks on a second. assume they aren’t ARMS but 30 year fixeds… you could call up the lender and just say, the house is worth less, I don’t want to eat the loss, so I’m gonna walk and let you hae the 150k loss. unless you sweeten the pot. just basically extort it out of them.

what are they going to do? if you have never refi-d your house..then you are perfectly able to walk away, mail them the keys, and have no repurcussions, other than your credit being tanked. if you tell the lender, you want the second wiped out, or you want the interest rate reduced…

hell, figure out what their REAL loss will be if you walk, and then extort better terms out of them that are better for YOU but NOT as bad as the defalt scenario, and heck, maye they would take it?

anyone think that the banks would concede to this kind of commando/in your face/I’m gonna screw you if you don’t sweeten the pot kind of attitude or would they say F you, get out, we’ll just foreclose..even though they will take a bath if they foreclose on the house???

with the huge number of 100% financed houses…there are PILES of peopel with LITERALLy no equity in a house, and mentally, nothing to lose by walking away. when you put down 20%, walking away hurts b/c you lost your investment. even if the house depreciated a lot and that 20% isn’t really there anymore…it still feels like you are losing your money to walk away from the house. BUT if you ptu down ZERO dollars, and the house has depreciated 150k or more…some large amount, a lot of people EVEN THOUGHT THEY ARE FINANCIALLY ABLE TO MAKE THE PAYMENTS may just saw screw it, and walk away. they might rather just eat the foreclosure, and let hte bank have the house and not have the “loss” to deal with. they’ll go rent something, wipe their hands of the house, and figure since i dind’ tput anythign down, i din’d tlose anythign..in fact, many of them might feel that while walking away is morally a bad thing, that they are making the wisest financial move they can as the house is SO UNDERWATER that keeping it is financially unwise….

smart, educated, and financially solvent people may start walking from their houses b/c they think it is the best thing to do… when that starts happening…when you have the ARM resets who should never have bought in the first place walking awawy, you have one problem..but when the people who COULD afford are also walking away..then you’ll have another wave of problems… and if everyone starts doing it, there will be less and less psychological “stress” for getting foreclosed on.. it will be “no big deal” to people if/when it gets so commonplace.

[23109VC]

this is such interesting stuff. you can see how this is all going to go downhill.

if someone has an 80/20….and has NO equity…and then just decides to “default” and stop paying… what are the banks really going to do? take the house and sell it at a loss?

if you tell them you can’t afford to pay…will they negotiate with you for new terms?

or negotiate for a new/lower rate? i guess for many peole it will depend HOW bad they are underwater, can they afford to keep the house at the “new” price/rate, and how bad will it FUBAR their credit/do they care?

suppose you bought a house at 500k. now it’s worth 350k. you are 150k upside down. you have a rate that is so so on your first, and sucks on a second. assume they aren’t ARMS but 30 year fixeds… you could call up the lender and just say, the house is worth less, I don’t want to eat the loss, so I’m gonna walk and let you hae the 150k loss. unless you sweeten the pot. just basically extort it out of them.

what are they going to do? if you have never refi-d your house..then you are perfectly able to walk away, mail them the keys, and have no repurcussions, other than your credit being tanked. if you tell the lender, you want the second wiped out, or you want the interest rate reduced…

hell, figure out what their REAL loss will be if you walk, and then extort better terms out of them that are better for YOU but NOT as bad as the defalt scenario, and heck, maye they would take it?

anyone think that the banks would concede to this kind of commando/in your face/I’m gonna screw you if you don’t sweeten the pot kind of attitude or would they say F you, get out, we’ll just foreclose..even though they will take a bath if they foreclose on the house???

with the huge number of 100% financed houses…there are PILES of peopel with LITERALLy no equity in a house, and mentally, nothing to lose by walking away. when you put down 20%, walking away hurts b/c you lost your investment. even if the house depreciated a lot and that 20% isn’t really there anymore…it still feels like you are losing your money to walk away from the house. BUT if you ptu down ZERO dollars, and the house has depreciated 150k or more…some large amount, a lot of people EVEN THOUGHT THEY ARE FINANCIALLY ABLE TO MAKE THE PAYMENTS may just saw screw it, and walk away. they might rather just eat the foreclosure, and let hte bank have the house and not have the “loss” to deal with. they’ll go rent something, wipe their hands of the house, and figure since i dind’ tput anythign down, i din’d tlose anythign..in fact, many of them might feel that while walking away is morally a bad thing, that they are making the wisest financial move they can as the house is SO UNDERWATER that keeping it is financially unwise….

smart, educated, and financially solvent people may start walking from their houses b/c they think it is the best thing to do… when that starts happening…when you have the ARM resets who should never have bought in the first place walking awawy, you have one problem..but when the people who COULD afford are also walking away..then you’ll have another wave of problems… and if everyone starts doing it, there will be less and less psychological “stress” for getting foreclosed on.. it will be “no big deal” to people if/when it gets so commonplace.

[23109VC]

this is such interesting stuff. you can see how this is all going to go downhill.

if someone has an 80/20….and has NO equity…and then just decides to “default” and stop paying… what are the banks really going to do? take the house and sell it at a loss?

if you tell them you can’t afford to pay…will they negotiate with you for new terms?

or negotiate for a new/lower rate? i guess for many peole it will depend HOW bad they are underwater, can they afford to keep the house at the “new” price/rate, and how bad will it FUBAR their credit/do they care?

suppose you bought a house at 500k. now it’s worth 350k. you are 150k upside down. you have a rate that is so so on your first, and sucks on a second. assume they aren’t ARMS but 30 year fixeds… you could call up the lender and just say, the house is worth less, I don’t want to eat the loss, so I’m gonna walk and let you hae the 150k loss. unless you sweeten the pot. just basically extort it out of them.

what are they going to do? if you have never refi-d your house..then you are perfectly able to walk away, mail them the keys, and have no repurcussions, other than your credit being tanked. if you tell the lender, you want the second wiped out, or you want the interest rate reduced…

hell, figure out what their REAL loss will be if you walk, and then extort better terms out of them that are better for YOU but NOT as bad as the defalt scenario, and heck, maye they would take it?

anyone think that the banks would concede to this kind of commando/in your face/I’m gonna screw you if you don’t sweeten the pot kind of attitude or would they say F you, get out, we’ll just foreclose..even though they will take a bath if they foreclose on the house???

with the huge number of 100% financed houses…there are PILES of peopel with LITERALLy no equity in a house, and mentally, nothing to lose by walking away. when you put down 20%, walking away hurts b/c you lost your investment. even if the house depreciated a lot and that 20% isn’t really there anymore…it still feels like you are losing your money to walk away from the house. BUT if you ptu down ZERO dollars, and the house has depreciated 150k or more…some large amount, a lot of people EVEN THOUGHT THEY ARE FINANCIALLY ABLE TO MAKE THE PAYMENTS may just saw screw it, and walk away. they might rather just eat the foreclosure, and let hte bank have the house and not have the “loss” to deal with. they’ll go rent something, wipe their hands of the house, and figure since i dind’ tput anythign down, i din’d tlose anythign..in fact, many of them might feel that while walking away is morally a bad thing, that they are making the wisest financial move they can as the house is SO UNDERWATER that keeping it is financially unwise….

smart, educated, and financially solvent people may start walking from their houses b/c they think it is the best thing to do… when that starts happening…when you have the ARM resets who should never have bought in the first place walking awawy, you have one problem..but when the people who COULD afford are also walking away..then you’ll have another wave of problems… and if everyone starts doing it, there will be less and less psychological “stress” for getting foreclosed on.. it will be “no big deal” to people if/when it gets so commonplace.

[Author]

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