The housing bubble was inflated by private lenders giving nearly unlimited money to eager borrowers to bid up real estate prices to levels not sustainable by the real incomes of the borrowers. I have pointed out that lenders are more culpable than borrowers, but it took two to tango. Under intense political pressure to make restitution to the sheeple and to limit future lawsuits on the matter, the major banks agreed to investigate themselves and determine by their own standards if borrowers were treated unfairly. Since the review process wasn’t placating former loanowners, the politicians and the banks negotiated a settlement agreement that will provide loanowners a few pennies to offset their perceived losses and injustice. The guilt payments won’t amount to much.
In the face of widespread evidence of illegal foreclosure practices, federal regulators in 2011 told the big banks to investigate themselves.
There is no evidence of widespread illegal foreclosure practices. This is a fiction perpetuated by media outlets pandering to loan owners whose bad decisions led to their own destruction.
The banks had to hire consultants to review foreclosures in 2009 and 2010. If violations were found, they were supposed to reimburse wronged borrowers “as appropriate.” Regulators pledged to ensure that the reviews would be comprehensive and reliable. In practice, it was left up to banks to decide what constituted wrongful foreclosure and appropriate redress.
Not surprisingly, after spending an estimated $1.5 billion on consultants, the banks have found little wrongdoing and provided no meaningful relief. Equally unsurprising, regulators will let the banks off with a wrist slap for their failure to execute credible and effective reviews.
Of course, the banks were not going to find that they did anything wrong. Even if they had, which they didn’t, an investigation of their own lending practices was never going to turn up anything substantive. The only purpose of this investigation was to placate loanowners and relieve the pressure loanowners were putting on politicians to “do something.”
This week, the Federal Reserve and the Office of the Comptroller of the Currency reached a deal with 10 banks under which the regulators will end the reviews and the banks will instead provide $8.5 billion in aid to borrowers. Of that, $3.3 billion is earmarked for cash payments to borrowers who lost their homes and $5.2 billion is for loan modifications and other help for borrowers currently at risk of foreclosure.
Regulators have said that the goal in ending the reviews is to provide relief to borrowers “in a more timely manner.” If it’s timely relief they wanted, they would not have instituted the deeply flawed review process in the first place, nor would they have let the sham reviews drag on for more than a year. Worse, the settlement amount is inadequate.
Inadequate? Inadequate to address what? The people who were forced out of the properties they were occupying were not paying their mortgages. What reward would have been appropriate for that behavior?
Since there are no reliable analyses to identify wronged borrowers — which was the ostensible purpose of the self-reviews — there is also no clear way to apportion the $3.3 billion among 3.8 million borrowers covered by the settlement. Some borrowers may get big sums while others get nothing, or millions could receive token payments. But given the extent of foreclosure abuses and the amount of money available, the individual reimbursements will be paltry compared with the harm of losing one’s home in an abusive process. If, say, half of the potentially eligible borrowers received a payment, each would get roughly $1,700 on average.
Most will likely receive much less than the $1,700 average. A pittance compared to what they all falsely hoped they would receive. Former loanowners who defaulted on their mortgages managed to convince themselves that they were wronged and they deserved some enormous sum. I imagine many of them who actually put money down were anticipating the return of their sometimes-substantial down payments. Never going to happen.
Millions of homeowners will be contacted within the next three months after Monday’s $8.5 billion foreclosure-abuse settlement between regulators and banks.
BY RICHARD CLOUGH AND JEFF COLLINS / ORANGE COUNTY REGISTER — January 8, 2013
Nearly 4 million homeowners will be contacted within the next three months to receive payment under Monday’s $8.5 billion foreclosure-abuse settlement between federal regulators and 10 large banks, according to the Federal Reserve.
Eligible borrowers, including homeowners in the foreclosure process during 2009 or 2010, will not be required to prove wrongdoing with their mortgage or take any further action, Barbara Hagenbaugh, a spokeswoman for the Federal Reserve, said Tuesday. Eligible homeowners will receive payment even if they did not previously apply for a foreclosure review.
Under the settlement agreement, which ended a nationwide foreclosure review program, the banks will pay as much as $3.3 billion directly to 3.8 million affected borrowers. The deal also designates $5.2 billion for loan modifications and other assistance to borrowers.
Hagenbaugh said each homeowner will receive between a few hundred dollars and $125,000; the specific amount will be determined by the type of problem with the mortgage, such as being denied a loan modification or having a home improperly seized. Every borrower in a particular category will receive the same amount, regardless of the size of the mortgage.
A small number of former loanowners may receive substantial payments, particularly those who were foreclosed on while applying for a loan modification. Although many of those borrowers were simply gaming the system to buy time, they will likely be singled out as the most aggrieved and receive more money. Any group that receives more money means less for the others. It’s likely most payments will be less than $1,000.
Besides direct payments, Monday’s settlement calls for additional funding for loan modifications, which has some homeowners optimistic.
“That would be great. Anything, I would thank God for,” said Miller, 46, whose income as a land surveyor dropped as homebuilders curtailed their activity over the past four years.
Miller paid $723,500 for his three-bedroom house in July 2006, taking out $651,000 in loans to buy the property. Today, he estimates the house is worth about $440,000.
He said he was unable to make the $3,107-a-month payment of his main loan after suffering from the triple hardship of divorce, unemployment and disability in the past six years, and eventually stopped making payments to prod his lender, Wells Fargo, into a loan modification. His home was scheduled for foreclosure Friday, but the sale was postponed for at least a month at the lender’s request.
If this guy got a divorce, was the wife a breadwinner whose income was expected to repay the loan? If so, then he no longer can afford the home on a single income, and he should be forced to sell rather than receive a loan modification to stay in a house he can no longer afford. Helping this borrower is what’s seen, but the potential buyer of that property that is being crowded out of the real estate market or forced to substitute to a lesser property pays an unseen price.
“I’m just trying to get to a point of stasis where I cannot only afford to live here, but the payments would stay the same,” Miller said. “I have absolutely no idea (if the settlement will assist), but I’m hopeful for every turn that will help me.”
Should we hope he gets assistance so his house does not come on the market to make room for a buyer who could afford it? I think not.
$370,000 in HELOC booty and three years of squatting
The former owners of today’s featured property extracted a large sum and were allowed to squat for a long time. Based on their treatment, do you suppose they deserve a cash payment from the bank for their troubles?
- This property was purchased for $634,000 on 4/15/1999. The owners used a $507,200 first mortgage and a $126,800 down payment.
- On 6/18/2001 they refinanced with a $588,000 first mortgage.
- On 6/21/2004 they refinanced with a $585,000 first mortgage and obtained a $195,000 HELOC.
- On 3/7/2006 they refinanced with a $880,000 first mortgage.
- They quit paying in early 2009 and played the loan modification game for three years. During the three years they weren’t paying, the balance on their $880,000 loan ballooned to $1,151,681 as the bank piled on fees, lost interest, and other charges.
Welcome to California. (hat tip to Alex R.)
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Proprietary OC Housing News home purchase analysis
$784,900 …….. Asking Price
$634,000 ………. Purchase Price
4/15/1999 ………. Purchase Date
$150,900 ………. Gross Gain (Loss)
($62,792) ………… Commissions and Costs at 8%
$88,108 ………. Net Gain (Loss)
23.8% ………. Gross Percent Change
13.9% ………. Net Percent Change
1.6% ………… Annual Appreciation
Cost of Home Ownership
$784,900 …….. Asking Price
$156,980 ………… 20% Down Conventional
3.48% …………. Mortgage Interest Rate
30 ……………… Number of Years
$627,920 …….. Mortgage
$142,804 ………. Income Requirement
$2,813 ………… Monthly Mortgage Payment
$680 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$196 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
$3,689 ………. Monthly Cash Outlays
($625) ………. Tax Savings
($992) ………. Equity Hidden in Payment
$173 ………….. Lost Income to Down Payment
$216 ………….. Maintenance and Replacement Reserves
$2,461 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$9,349 ………… Furnishing and Move In at 1% + $1,500
$9,349 ………… Closing Costs at 1% + $1,500
$6,279 ………… Interest Points
$156,980 ………… Down Payment
$181,957 ………. Total Cash Costs
$37,700 ………. Emergency Cash Reserves
$219,657 ………. Total Savings Needed