500,000+ Flee Mortgages in 2008

jstuart — Wed, 03 Feb 2010 17:44:22 +0000

New Orleans I have taken some heat for recommending that homeowners who are underwater walk away from their mortgage obligations in the face of totally, and now admittedly, inept response to the foreclosure crisis by the Obama Administration all facilitated by the total greenwash of the banks by Treasury Secretary Geithner. It seems according to numbers crunched by Oliver Wyman consultants from credit bureau data reported in the New York Times that an estimated “17% of owners defaulting in 2008, or 588,000” voted with their feet to walk away from shrinking values and no relief. And, that’s 2008! Wait until we see the numbers for 2009 and the march to the street, and the running stampede as this problem hits its apex in 2010.

The Wyman calculations were based on credit bureau data and derived from the number that went from being “current on their mortgage to default, rather than making spotty payments.” Accurately this is a walk away profile, abandoning any pretense of looking for remediation based on inability to pay. These are homeowners that could and had been paying, but who looked at the bottom line, read the paper, and realized it was going to be decades before they got their money back.

Wall Street continues to walk away. Big time real estate operators are walking away. The spinners are trying to say the feds won’t bail out the homeowners, but the truth is that the feds are bailing out the banks and letting them not restate the value of the mortgages that are underwater yet. Somebody’s getting paid, just not the little guy – again!

The banks are still in denial reporting on 1991 statistics that indicate that people do not walk away. Hello! They knew in 2006 and 2007 that people were paying their credit cards before they paid their mortgage. Get the message? People no longer see the mortgage as life and death when they don’t have much skin in that game and were playing for the uptick of the value to refinance on a 2-28 or 3-27 or an ARMS.

The stampede to get away from these bad deals will crush a lot of these Wall Street cowboys and push them over the cliff, as people swim hard to get back to the surface and right size their investments. Unless there is real help, which no one sees on the horizon yet.

Shaming Wall Street? Foreclosure Moratorium!

dine — Tue, 01 Dec 2009 18:22:37 +0000

Boston There’s a full moon. The Saints are 11-0 and whipped the New England Patriots like a red-headed stepchild. Now the Treasury Department has announced another new strategy for dealing with foreclosures, given that nothing else has had much of a dent on the problem: shaming.

I guess anything is possible these days, but what are the real odds?

Zero, I would venture.

Wall Street and their front men in the mortgage servicing industry are beyond shame, and Treasury should know that by now having tried summits, summoning, jawboning, and everything they were willing to play other than hardball with the industry. Mortgage relief and restructuring is a shell game because there are too many players, no transparency, no clear ownership, no clear title control, and no accountability. Securitization has created a nightmare allowing too many companies to keep moving paper behind the walls without ever showing their hands. This is the same industry that created the problem and somehow has not been held to account yet. Why should they believe that mortgage relief will be any different?

All shaming can do is create leverage on the couple of companies like Citi and Bank America, and even Goldman Sachs if they were willing, that own mortgage services and where the feds have big investments. Of course the problem there is that Treasury doesn’t necessarily want to force real relief because that could also lead to huge write downs on the balances of these quasi-federal financial institutions. Then the evil eyes come back to Treasury and their role in some of these buyouts and where does the real shaming end then?

The only way banks and mortgage holders don’t take a huge write off, given the number of loans underwater and the houses facing foreclosure is if there is really a federally ordered foreclosure moratorium. A moratorium holds existing value on the balance sheets of the mortgage levels and allows everyone to finally sort the mess out and figure out how to prop up the relief efforts with real dollars. A moratorium also would allow for some market recovery time.

At one point a moratorium might have looked like a radical solution. Banks and mortgage holders will cry like stuck pigs at the thought of freezing non-performing mortgages and there will be glib and pointless talk about “moral hazard” among institutions without morals, but at this point it is hard for me to imagine much else that might work other than a moratorium.

Wade Rathke: Chief Organizer Blog » treasury

500,000+ Flee Mortgages in 2008

Shaming Wall Street? Foreclosure Moratorium!