Banks Make More $$ Not Modifying Mortgages

Just when we thought we understood what was going on we find that banks are taking advantage of their investors. Well, they do not call them banksters for nothing. There is a great article titled Mortgage servicers perverse incentives from Reuters Blog that illustrates how lenders make money by not negotiating. This bundle comes from the investors. Let's take a look -

Last month, I wondered whether banks’ seeming inability to effectively modify mortgages was a function of “greed on the part of the banks — that while they pay lip service to the idea of modifying mortgages, they actually make more money by being recalcitrant and obstructive and unhelpful.”

It turns out that the answer is yes, it is — and the NYT’s Peter Goodman has chapter and verse:

Many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

In a sidebar, Goodman examines the case of a mortgage servicer, Countrywide, which refused to let Alfred Crawford sell his house for $620,000 in settlement of mortgage debts exceeding $800,000. The latest offer on the house is now just $465,000, and still no short-sale is being allowed.

In the meantime, Countrywide is paying itself lots of fees — fees which will ultimately come out of the pockets of the investors who bought the mortgage-backed bonds which Crawford’s loan was bundled into. The minute that Countrywide allows the house to be sold, that fee income dries up.

The claim is that lenders are looking out for investors. But if you read the whole post you will see that the lenders are really just looking out for themselves. That is why short sales do not work out. That is why foreclosures seem to lag on and on. The lenders are able to extract every penny out of the situation as possible. How is the housing plan going to compete with that?

Bake Sales for Mortgages

We have heard it all now. A bake sale for raising the mortgage money. We are just surprised no one has thought of it first. Or maybe they did and did not know how to generate publicity for it. But we do think that $40 for an apple cake is a bit expensive. Maybe it is just us. But it raised enough for a local Teaneck woman to save her property. In this Associated Press article titled NJ woman's bake sale helps make mortgage payment gives us the details. Let's take a look -

New Jersey woman's bake sale has helped her forestall foreclosure.

Angela Logan raised the $2,559.54 due Sunday under a federal program to help homeowners in financial trouble.

The divorced mother of three sons in Teaneck wanted to sell 100 "mortgage apple cakes" at $40 each. But as of Tuesday, she had more than 500 orders, including one from Hong Kong.

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Logan tells The Record of Bergen County she won't stop baking until people stop ordering.

It sounds like she may have next months mortgage payment as well. Now lets see a review of the cakes...

Sub Primers in Charge of Mortgage Mods

Since the sub prime mortgage market has died the formers employees need to do something. So what better than starting mortgage mod companies to try to work out the loans that they sold a few years ago. Who knew the loans better, right? They already know the lenders that they sold the loans to as well. Plus they are making money in the process. So it must be a win-win situation, at least for the ex sub prime employees. For those that bought the loans a few years ago it sounds more like a lose-lose situation. They are paying the mods money to still lose their house anyways. And what are the new mod employees doing to help the poor folks facing foreclosure? Why laughing at them! That is what just happened in California according to this New York Times article titled Subprime Brokers Back as Dubious Loan Fixers. Let's take a look -

By Mr. Soussana’s own account, his customers fared less happily. He specialized in the exotic mortgages that have proved most prone to sliding into foreclosure, leaving many now scrambling to save their homes.

Yet the dangers assailing Mr. Soussana’s clients have yielded fresh business for him: Late last year, he and his team — ensconced in the same office where they used to broker mortgages — began working for a loan modification company. For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California.

“We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.”

Mr. Soussana’s partners at FedMod, as the company is known, were also products of the formerly lucrative world of high-risk lending. The managing partner, Nabile Anz, known as Bill, previously co-owned Mortgage Link, a California subprime lender, now defunct, that once sold $30 million worth of loans a month.

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FedMod is but one example of how many of the same people who dispensed risky mortgages during the real estate bubble have reconstituted themselves into a new industry focused on selling loan modifications.

And of course there is a Mozilo involved - Angelo Mozilo's nephew.

This company figured out how to work the system the best ways possible. Get a lawyer in charge so they could charge up front fees. Once they got the money they did little else - even pay their employees!

The article is long but it does a great job of portraying the build-up and downfall of the company. Definitely worth the read. And worth remembering not to pay someone, anyone, up front to modify your mortgage!

Foreclosure Summary

We knew that yesterday's numbers were bad, overall. But reading a summary of the numbers makes things seem even worse. This New York Times article titled Foreclosures Rise puts thing into perspective. Let's take a look -

One in 84 American housing units received at least one foreclosure filing in the first half of the year, according to RealtyTrac, the online marketplace for foreclosure properties.

Altogether, that makes for a total of 1,905,723 foreclosure filings — default notices, auction sale notices and bank repossessions — reported on 1,528,364 American properties in the first six months of 2009. Compared to the same period last year, the number of total foreclosed properties rose nearly 15 percent.

No green shoots in this direction. And not for some time to come. Almost 2 million homes in distress. With unemployment numbers still rising. And since there is a lag time from when people stop paying their mortgage to when the default notices start this will continue to rise for some time.

Gloomy indeed!

Foreclosures Down in NJ but Up Nationally

Another round of foreclosure numbers are out. A sign of good news for New Jersey but nationally the news remains grim. First let's take a look at the national numbers from MSNBC's article titled Foreclosures up 15 percent in the first half of 2009 -

The number of U.S. households on the verge of losing their homes soared by nearly 15 percent in the first half of the year as more people lost their jobs and were unable to pay their monthly mortgage bills.

The mushrooming foreclosure crisis affected more than 1.5 million homes in the first six months of the year, according to a report released Thursday by foreclosure listing service RealtyTrac Inc.

The data show that, despite the Obama administration’s plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation’s housing woes continue to spread. Experts don’t expect foreclosures to peak until the middle of next year.

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More than 336,000 households received at least one foreclosure-related notice in June, according to the foreclosure listing firm’s report. That works out to one in every 380 U.S. homes.

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On a state-by-state basis, Nevada had the nation’s highest foreclosure rate in the first half of the year, with more than 6 percent of all households receiving a filing. Arizona was No. 2, followed by Florida, California and Utah. Rounding out the top 10 were Georgia, Michigan, Illinois, Idaho and Colorado.

Those are some grim numbers. That coupled with the projections that foreclosure will not peak for another year is very ugly economic news.

Now on to one sign of good news locally; a Star-Ledger article titled New Jersey foreclosure rate falling. Let's take a look at how the Garden State is fairing -

Initial foreclosure filings on New Jersey homes have fallen through the first half of 2009, and government programs are getting some of the credit.

Foreclosure activity has dropped up to 30 percent across the first half of the year compared with the same period the previous year, according to data being released today by RealtyTrac, a private company that monitors foreclosure data. The company watches activity across a number of stages of the foreclosure process.

Initial foreclosure filings in the first five months of the year fell nearly 20 percent, according to the New Jersey Judiciary, although May data was not complete.

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Still, industry watchers think the state's foreclosure rate is falling for a number of reasons: New Jersey was not as exposed to the plague of subprime mortgages as other states, Trenton and industry groups have been pushing foreclosure prevention programs and home prices have not fallen as much here as in other areas of the country.

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There are mixed opinions about whether the numbers will stay lower than last year or whether foreclosures will come back up.

"It's hard to tell at this point what's going to happen," said James Silkensen, the co-president of the New Jersey Bankers Association. "We're certainly hopeful it will be a continuing downward slide."

One interesting part of the article not above is that the state's foreclosure counseling programs are reporting that they are as busy as ever. Perhaps that is a good thing - people are aware and proactive. Fighting to keep their property or at least not lose it to foreclosure is much better than the walkaways or people feeling so beat down by the system they are apathetic.

Mixed Messages

Citizens get such mixed messages. Do not get in debt. But spend, spend spend. Consumers need to spend to get us out of the recession. But you need to save for a rainy day. And you need to have enough to get by, pay your full monthly mortgage payment and a little more. These mixed messages thrust on us can be very confusing. So we get some good news that consumers are now saving - but this is also bad news since it means consumers are not spending, huh. So says this article from Brookings Institute titled Economic Fears Lead to a Surge in Household Saving. Let's take a look -

For many years, economists and other experts have bemoaned American consumers’ unwillingness to save. Now Americans are saving once again, and observers worry that too much saving translates directly into too little consumer demand. Was consumer saving too low in the past and, if so, why? Is it now too high?


The personal saving rate has soared in recent months. As a percentage of disposable income, the 6.9% rate recorded in May was the highest rate in over 15 years. According to the national income and product accounts, personal saving in 2007, the last year before the start of the recession, was $57 billion. In the January-March 2009 calendar quarter, the annual rate of personal saving was $464 billion, an eight-fold increase. In May 2009, the rate of personal saving rose still further, reaching an annual rate of $769 billion, nearly fourteen times the annual saving rate in 2007.


It may seem puzzling that personal saving would soar at a time of surging unemployment and falling wages and profits. U.S. consumers are worried, however, that their private incomes could fall still further in the future. Even Americans who hold secure jobs have experienced a dizzying drop in wealth over the past 18 months. Since reaching a peak in 2007, household net worth fell almost $14 trillion, a drop of more than one-fifth. The huge loss in wealth has induced many consumers, including those with secure incomes, to cut back on buying in order to bring their consumption back into line with their long-term ability to spend.


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In the second half of the 1990s and much of the current decade the ratio of U.S. household wealth to household income was rising in spite of the fact that households were saving very little of their incomes. If capital gains on your home and in your stock market portfolio are doing so much of the heavy lifting, why should you make any consumption sacrifice to add to your savings? Asset price deflation turned capital gains into huge capital losses over the past 18 months. Households now need to save in order to rebuild their wealth holdings.


A second contributor to low household saving in the past two decades was a series of innovations in consumer and mortgage lending. The wider dissemination of credit cards made it easier for households to borrow without any collateral. Innovations in mortgage finance made it easier for people with poor credit records to buy a home and for people with good credit histories to borrow on their home equity. These innovations relaxed borrowing constraints that once limited households’ ability to obtain loans when they were temporarily short of funds. Households saw less reason to accumulate or maintain a stash of liquid savings for emergencies. But the financial crisis has cut off many households’ access to credit. If they want to protect themselves against future financial emergencies, households must accumulate precautionary savings. In a future emergency they may not be able to rely on credit cards or home loans to tide them over.

If your house value was increasing by double digits every year why save. Many of us felt rich just owning a house. While that wealth that we felt was just an illusion the debts we owed were real. And now, to many of us, they are painful. But the big problem is this push to live within our means but spend every penny we have. But since on a personal level saving is good - on a national level this level of saving is not so good. Our advice is to worry about the personal levels only...