tag:blogger.com,1999:blog-3098264341625381422.post6549865324264123185..comments2024-03-18T17:01:07.165-07:00Comments on The Provocateur: Some Nightmare Scenarios of Obama and Loan Modificationsmike volpehttp://www.blogger.com/profile/02999118519606254362noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-3098264341625381422.post-55522511658498194532009-01-21T17:20:00.000-08:002009-01-21T17:20:00.000-08:00If you think that after six months that ten percen...If you think that after six months that ten percent of these loans are back in default, that this is a good number then you are out of your mind.<BR/><BR/>Like I said, I don't agree with TARP or anything that rewards bad behavior, known as a moral hazard. <BR/><BR/>This was an equal partnership between bad lending practices and irresponsible borrowers. The idea that you purport that lenders took advantage of naive borrowers that had no idea what was going on is simply devoid of reality. It simply isn't true. <BR/><BR/>Nothing of what you say on this matter can you back up with anything near a fact.mike volpehttps://www.blogger.com/profile/02999118519606254362noreply@blogger.comtag:blogger.com,1999:blog-3098264341625381422.post-39684451067136282422009-01-21T17:07:00.000-08:002009-01-21T17:07:00.000-08:00Mike, Although I agree that this discussion is abo...Mike, <BR/>Although I agree that this discussion is about modifications and not TARP, my viewpoint <BR/>here from the very beginning has been that the problem originated with bad lending <BR/>practices, moreso than bad borrowers, therefore mentioning TARP as a way of rewarding <BR/>bad banks seems in order. <BR/>Danger: Skewed Figures Ahead! From the Star Tribune: <BR/>“But counselors at several foreclosure prevention agencies in Minnesota, as well as <BR/>several new studies, say those numbers are misleading (successful modification <BR/>numbers), with the vast majority of modifications still leaving homeowners with <BR/>mortgages they can't afford. Counselors say many modified mortgages still have the same <BR/>esoteric terms that sunk so many subprime borrowers: "interest-only" and "balloon" <BR/>payments, as well as scheduled interest rate increases -- now called "stepped rates" <BR/>instead of "adjustable rates." <BR/>snip <BR/>“Of 21,000 modifications last November, 68 percent wrapped missed payments and other <BR/>charges into the principal, according to Alan White, the researcher and a law professor at <BR/>Valparaiso University School of Law in Indiana. That added about $11,000 to the average <BR/>$210,000 mortgage and led to higher monthly payments in 45 percent of cases, White <BR/>said.” <BR/>http://www.startribune.com/business/37734799.html <BR/>Mike, these numbers pretty much negate the data about how many modifications renter <BR/>default. If 55% re-enter default within six months, but 45% of modifications are actually <BR/>causing payments to rise, then I would suggest throwing 45% of the modifications out <BR/>right off the bat. Therefore, 10% re-enter default after six months...not a bad rate at all. <BR/>Frank In DixieAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-3098264341625381422.post-4192499205375439582009-01-21T14:46:00.000-08:002009-01-21T14:46:00.000-08:00I have in fact spoken out against TARP and I do th...I have in fact spoken out against TARP and I do think it is a horrible idea. I do think it rewards the very behavior that should be punished.<BR/><BR/>yet, this piece is about loan modifications and so I don't introduce TARP. You will find that I am very consistent on the issue of moral hazards. You just have only read this piece and none of my others and so you assume things that aren't so.mike volpehttps://www.blogger.com/profile/02999118519606254362noreply@blogger.comtag:blogger.com,1999:blog-3098264341625381422.post-63060665672585179362009-01-21T14:41:00.000-08:002009-01-21T14:41:00.000-08:00Mike, If you simply insert the word bank into eve...Mike, <BR/> <BR/>If you simply insert the word bank into every spot where you write borrower, you’ll see <BR/>my point exactly. <BR/>"The troubled asset relief program is a horrible idea. TARP rewards exactly the sort of <BR/>behavior that should be punished. Why should a bad bank be rewarded with billions of <BR/>taxpayer’s dollars because they gambled big and lost? Exactly what sort of behavior do <BR/>you think this encourages?" <BR/> <BR/>You wrote, “Maybe, you figured out that I do know what I am talking about.” I’m sorry <BR/>Mike, I didn’t figure that one out. But I did figure out that we will never see eye to eye on <BR/>this, and that’s OK by me. <BR/>Good luck to you, <BR/>Frank In DixieAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-3098264341625381422.post-79022914729581213112009-01-21T13:56:00.000-08:002009-01-21T13:56:00.000-08:00Frank, with all due respect, if half of loan modif...Frank, with all due respect, if half of loan modifications are back in default in only six months, that data speaks for itself. You can true and play all the word games you want, but clearly that data indicates one thing and one thing only, loan modifications are a horrible idea.<BR/><BR/>A colleague just came into my office after recommending that a borrower start to miss payments in order to get a loan modification. This is what will see on a grander scale the more these modifications are pushed by the government and other forces. <BR/><BR/>They are a horrible idea. They reward exactly the sort of behavior that should be punished. Why should someone be rewarded with a better rate because they miss their mortgage payment? Exactly what sort of behavior do you think this encourages? <BR/><BR/>Call this what you want. I have been in this business for seven years and what I see with loan mods may wind up being worse than what I saw in sub prime.<BR/><BR/>There is no sensible solution to loan modifications besides making them as rare as possible. <BR/><BR/>Anyone can come up with a hard luck story like your friend and then they will receive rates the market couldn't give them. That is encouraging the worst sort of behavior. The more people learn about loan modifications the more it will be manipulated and it will be manipulated by the same folks that manipulated sub prime.<BR/><BR/>I do notice that after your bellicose rant initially, you calmed down. Maybe, you figured out that I do know what I am talking about. <BR/><BR/>You can comment anytime, but be prepared to defend what you say because I love any debate.mike volpehttps://www.blogger.com/profile/02999118519606254362noreply@blogger.comtag:blogger.com,1999:blog-3098264341625381422.post-42760197360483641852009-01-21T13:44:00.000-08:002009-01-21T13:44:00.000-08:00Mike, The entire first half of your rebuttal exam...Mike, <BR/> <BR/>The entire first half of your rebuttal examines the fact that around half of all loan <BR/>modifications are back in default. I don’t argue this point. However, I will argue that the <BR/>data is skewed when you consider that there is no baseline from which to draw <BR/>conclusions as to the efficacy of the individual modifications. Since there is no <BR/>modification formula presently in practice, no agreed upon standard, who can know <BR/>whether or not the terms of these modifications were sustainable for the individual <BR/>homeowner’s financial situation? <BR/> <BR/>I have a friend who lost his job and went into default. He was able to find other work, <BR/>only at much less money than his previous employment. He managed to pull his house <BR/>back out of foreclosure, but still needed a modification in order to keep his home. After <BR/>nine months of being told that he would get a modification from Countrywide, they <BR/>finally sent him the paperwork to sign. They modified his mortgage alright, only they <BR/>modified the monthly payment upwards, at the same time adding $7,500 in fees to the <BR/>principal. BTW, this was a take it or leave it proposal....take it and keep your house, leave <BR/>it and we foreclose. I’m sure this incident is not unique, and yet it too would show up as <BR/>more skewing of the above mentioned data. <BR/> <BR/>You state that you’ve been in mortgages for seven years. I’m not sure if that means that <BR/>you’ve been in the mortgage industry for seven years, or that you’ve had a mortgage for <BR/>seven years. I would guess it’s the latter if you’re unaware of the abusive practices that <BR/>have been going on for quite some time by lenders and brokers alike, and that most <BR/>people knowledgeable about the current state of affairs believe are to blame for the <BR/>worldwide pickle we’re in. IMO, you tilt the blame exponentially on the side of the <BR/>borrower. The fact of the matter is that for many people, these are complicated <BR/>documents, and many rely on these so called professionals to help steer them into a <BR/>mortgage that will serve them well. A sad but true study just recently reported that 1 out <BR/>of 7 Americans are illiterate. I wonder how many subprimes were sold to these poor <BR/>folks? Pennsylvania defines a subprime mortgage as follows, “Subprime means, in effect, <BR/>breaking the traditional rules governing qualification for a mortgage, as well as <BR/>structuring payments in a way that almost seems guaranteed to put the borrower in a bind <BR/>at some point.” Hmmm, not too ambiguous as to who’s at fault in PA. <BR/> <BR/>Contrary to your belief, many banks aren’t writing modifications simply because the <BR/>products they sold no longer exist in a recognizable form, and have been sold to investors <BR/>who don’t want to see their investments go down any further. That’s understandable, I <BR/>don’t like when that happens either. But until the reality sets in that this credit freeze isn’t <BR/>going to thaw until this issue is dealt on a wholesale level, as painful as that may seem, <BR/>we’re in a stalemate, and nothing will change save for the further deterioration of world <BR/>markets and an increase in foreclosures due now not to subprime mortgages, but to <BR/>increasing job losses. It’s a nasty feedback loop. <BR/> <BR/>The good news is that some banks are starting to see the wisdom in Sheila Bair’s <BR/>common sense proposal that includes meaningful modification terms, ones that don’t just <BR/>look good on paper, but that get to the heart of the matter i.e. through principal write <BR/>downs, adjustment linked to ones ability to repay, reduction in interest rates as well as a <BR/>reamortization of the loan out to 40 years. IMHO, only through a combination of <BR/>substantial changes like these will we escape from the event horizon of this immense <BR/>financial black hole we’re peering into. <BR/> <BR/>BTW, I don’t consider these back and forths as rants so much, as you suggested in your <BR/>follow up to me. I look at them more as meaningful discussions in which we just happen <BR/>to disagree. You’re looking down, and I’m looking up, but we’re both staring at the same <BR/>problem. I suspect that these two ideologies will have to meet somewhere in the middle if <BR/>we’re ever going to work this thing out. Just a thought. <BR/> <BR/>Peace, <BR/> <BR/>Frank In DixieAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-3098264341625381422.post-51362509263575657642009-01-21T11:04:00.000-08:002009-01-21T11:04:00.000-08:00Frank,it's ironic that you claim that my arguments...Frank,<BR/><BR/>it's ironic that you claim that my arguments have "no basis in fact", because nothing you said was backed up by anything near a fact.<BR/><BR/>First, banks are reluctant to do loan modifications. Second, the first data from modifications has come out from the MBA and it is not very good. About half of loan modifications are now in default. <BR/><BR/>http://www.cnbc.com/id/28112901<BR/><BR/>It's true that a loan mod is better than a foreclosure as long as the modified loan is paid back. Of course, the reason that banks didn't do many loan modifications is because they simply didn't believe that most would be paid back.<BR/><BR/>There are plenty of other problems with loan modifications. You don't know if the borrower will pay back the new modified loan. Furthermore, once the public at large learns that a bank provides this service, many more will want it and many will fall behind to get it.<BR/><BR/>As for the rest of your rant, I have been in mortgages for seven years and loans are not so hard that financial professionals can't understand them. While you claim that millions of people were duped by sophisticated mortgages, you provide no example. <BR/><BR/>If a multi hundred thousand dollar loan was too complicated for someone to understand, why did they sign the documents? Frankly, there are plenty of loans out there that are very simple. For instance, there is the 30 year fixed. This loan has the same payment and rate for thirty years and it never changes. Many borrowers demand this loan because they aren't sophisticated enough to understand other loans. Maybe all of these borrowers should have heeded such warnings. <BR/><BR/>Another somewhat simple loan is the ADJUSTABLE RATE MORTGAGE. Now, if your claim is that financial pros couldn't understand this loan, that is nonsense. If you claim a borrower didn't know that an ADJUSTABLE rate mortgage, adusted, that is their fault. <BR/><BR/>The most complicated loan I know is the option arm. Frankly, any borrower that signed up for this loan without understanding all the consequences has to bear some responsibility. Yet, even this loan is understood by financial wizards. <BR/><BR/>Frankly, I don't just blame the borrower. Lots of people are responsible. The difference between me and you is that I include the borrower in those responsible.mike volpehttps://www.blogger.com/profile/02999118519606254362noreply@blogger.comtag:blogger.com,1999:blog-3098264341625381422.post-36783546773730119892009-01-21T08:26:00.000-08:002009-01-21T08:26:00.000-08:00Your arguments have no basis in fact from a Main s...Your arguments have no basis in fact from a Main street point of view. <BR/>Please provide some documentation to support your statement, "Banks are <BR/>reluctant to hold onto loan modifications because they know that in general <BR/>a bunch of modified loans are even worse than just foreclosing." At $50K or <BR/>more per foreclosure, it costs a bank far less to modify than to foreclose. <BR/>Banks are reluctant to modify because they know the government will <BR/>absolve them of any wrong doing and buy their bad debt, plain and simple. <BR/> <BR/>Your views, although supported by many in D.C., including even the <BR/>departing Hank Paulson, appear to be totally supportive of the gross <BR/>negligence and even blatant fraud perpetrated on millions of Americans who <BR/>were given loans that even law professors don’t understand. These products <BR/>were invented out of the sheer desire to make as much money as possible in <BR/>the shortest amount of time by shrewd financiers with a devil may care <BR/>attitude about the future. <BR/> <BR/>To lay the blame of this financial Armageddon solely at the feet of the <BR/>millions of plumbers, dental assistants, and auto mechanics who simply <BR/>wanted a roof over their heads at an affordable price displays a total <BR/>disconnect from the reality just beyond the Hill of D.C., and just outside of <BR/>Wall street. Your arguments would be downright knee slapping laughable if <BR/>the aforementioned folks weren’t being put out on the curb like so many <BR/>bags of garbage, while at the same time the management of these financial <BR/>institutions curbing them are parachuting left and right with millions of <BR/>dollars. Taxpayer dollars I might add. The very same dollars that the <BR/>plumber and mechanic who are now out on the curb paid to the government <BR/>in the first place. Having to financially support the very bank that put you <BR/>and your family out on the street is somewhat akin to being forced to dig <BR/>your own grave. <BR/> <BR/>Your heading reads, “The nine most terrifying words in the English <BR/>language are 'I'm from the government and I'm here to help.” I would prefer <BR/>that any day to, “Have I got a product for you! Just sign and initial these 75 <BR/>pages and move right in to your dream home! You don’t even have to put <BR/>any money down, isn’t it great?”Anonymousnoreply@blogger.com