Mortgage fixes Useless as Feathers on a Lizard
Dear Congressmen, Congresswomen and Senators,
For nearly ¼ of a century, my wife and I have been REALTORS®. We have been with Coldwell Banker Residential Brokerage in Phoenix, Arizona well over a decade. We have processed over 130 successful short sale approvals. A growing part of our short sale clientele is comprised of good folks who have been placed in very bad and difficult positions, through either job loss, health issue or job relocations. Many would love to keep their homes. Congress has failed to move fast
enough to help the growing population of short sale sellers. There is NO reason why many of these folks should be forced from their homes when a “principal reduction” loan modification would keep them in their home and allow them to grow their family and their family nest. The only thing the current HAMP program offers is a band-aid to a current or eminent payment crises. HAMP does NOTHING to address a fundamental problem with home retention and that is the ability for the home owner to be able to, one day in the future, sell his/her home for a profit so they can move up, move down or retire. HAMP builds into home retention the reality that the current homeowner will, eventually, be forced to sell the home under the terms of a deed in lieu or short sale and then be demoralized by the reality that the next owner will purchase the home for current fair market value, a
figure that, had a principal reduction loan modification been implemented for the current homeowner, would have allowed the original owners to retain possession of their home.
There are plenty of bank officials and pundants and members of congress who say that “principal reduction” loan modifications would undermine the very fabric of the mortgage market, ultimately scaring away investors from purchasing MBS (Mortgage Back Securities). To that group of idiots I say, get over it! The barn (the current lot of Mortgage Backed Securities) is already on fire. The fire needs to be put out and then you can rebuild the barn (the way MBS are configured insured, sold and traded). If you don’t fix the problem, the pool of buyers who will offer investment
portfolios for the MBS market will dry up like a prune.
The folks we met with yesterday, Mr. and Mrs. SECURE are a perfect example of good folks whom the government and the banking industry has turn their backs on.
Mr. and Mrs. SECUREs purchased their home in December 2007 for $512,865. They put 5% down, compliant with lending guidelines at the time, to secure a 5 year interest only loan. That loan is set to adjust in January 2012. At the time they purchased their home and were approved for their loan, they had a double income with Mr. SECURE employed at the Palo Verde Nuclear Power Plant in Arizona and Mrs. SECURE employed with an accounting firm. They had a residual income of 4 times their monthly mortgage payment. The Interest Only Loan was sold to them, by their builder,
with a story line that was not uncommon back then. Their FICO scores were in the high 700s at the time as they remain today.The conversation from the loan officer might have gone something like this:
Loan Officer: “Oh yes, we can put you in this home for only 5% down, that way you can conserve your own personal resources. Let’s put you into a 5 year “interest only” ARM. With the way property values are climbing, you can refinance out of the ARM in two or three years, into a fixed rate mortgage at a rate that will keep your mortgage payments about where they will be when you begin this new loan.”
Of course the loan officer’s projections were dashed to pieces with the total meltdown of the mortgage market and even more incredible is the reality and fact that this “spew of goo and nonsense” continued from nearly every lending institution in America, even after the TARP bill had been passed in November 2007, in an assumed effort to stabilize the US economy. The US economy was racing toward the cliffs, partially because of idiotic loans like the one that was sold to innocent consumers, like the SECUREs, and yet no one put a stop to it.
Recently, Mrs. SECURE has lost her job, reducing the household to a single income family. The SECURE’s reached out to Bank of America (BofA) for mortgage assistance. The patch-work loan modification that BofA has offered is but a Band-Aid on a wound that is hemorrhaging gallons of blood. The conciliatory loan modification offered by BofA reduced the families loan payment by $400 but does nothing to address the long-term problem of the exponential depreciated value of
their home. In just over 30 months, the SECURE’s home has been devalued over 50% by the collapsed real estate market and economy. Today the home is somewhere between $230,000 and $280,000 underwater. The home they purchased for $512,865 just 2½ years earlier is now valued at around $250,000.
Given the historic rate of appreciation the Arizona real estate market has enjoyed over the past 2 decades, and the projected and current rate of appreciation now being suffered upon today’s real estate market, it is expected that the home will not appreciate in value, enough to retire the current mortgage, for well over two decades, or longer (not accounting for an inflationary upward spiral which is sure to occur over the next few years). This is an incredible and unacceptable burden to place upon Arizonans and Americans. This story plays out in tens of thousands of households across the United States each day.
But back to the plight of the SECUREs; BofA has plans to launch a “principal reduction” loan modification program but will only offer that program to those families who are 60 days or more delinquent. This is an extremely unbalanced, unfair and flawed strategy. While those folks who are delinquent on their mortgages are certainly in need of assistance, the folks who have struggled to stay current on their mortgage, forsaking all other family and life style creature comforts, should be afforded the same or similar programs.
Until a system is put in place, by every financial institution who holds, services and/or insures a mortgage on residential real estate, that addressed the incredibly desperate contract between current value of a family’s home and the balance owed to their lender, i.e. “principal reduction loan modifications” the tsunami of foreclosures will not subside and a steady stream of families will continue to be displaced because there is no help for good people caught up in a difficult situation, little if any of which is their own making.
Ladies and Gentlemen of the House and Senate, you MUST do something to FORCE loan servicing companies, MBS investors such as Fannie Mae and Freddie Mac and independent investors and mortgage insurance companies and Ginnie Mae and Sallie Mae/HUD to work out “principal reduction” loan modifications. Look at the numbers, nearly 3 in 5 homes in Maricopa country in Arizona and Clark county Nevada have mortgages that are more than 50% underwater. The numbers are exponentially worse in California, Michigan and Florida. Over 1/5 of the nation’s mortgages are underwater and property values will not recover enough to retire the current mortgages for decades… unless each qualifying homeowner is granted a “principal reduction” loan modification.
We can be reached direct at 602-796-5674 or through our office at 623-344-4000 and ask to speak to G-II Varrato II.
Lori Klindera and G-II Varrato II, Retired USAF 820th CES Red Horse, rCRMS, ePRO, ABR, CNE, RECS, SFR, Mentor, REALTOR®
Short Sale / Save The Dream – Quitting is NEVER an Option! - Coldwell Banker Residnetial Brokerage
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