There was an interesting story recently over at HousingWire reporting that two lenders — GMAC and Ocwen — have ramped up the number of principal write downs in this months. Here is a bit from that article:
Mortgage servicers began aggressively writing down the principal on delinquent nonagency mortgages and even second liens in January, analysts at JPMorgan Chase said in a report Wednesday, yet the amount of foreclosed properties continues to rise.
GMAC, the servicing arm of Ally Financial, stood out to analysts, who surveyed 433 deals in the nonagency space. In one security, GMAC liquidated 45 mortgages for a $3.2 million loss. At the same time, however, it modified nearly 1,200 of the loans that included $5.5 million in principal forgiveness.
“This is the first time we have seen large-scale principal forgiveness from GMAC,” JPMorgan analysts said. Outside of GMAC, however, principal forgiveness has been contained only in the subprime sector, but even those have occurred on a smaller scale to GMAC’s January numbers.
Ocwen Financial Corp. showed a push to charge-off second liens and low-balance first liens when it took over servicing for HomEq and Saxon Mortgage Services.
“I haven’t seen the report so I cannot comment specifically on it, but I can say that whenever we charge off second liens, it’s in accordance the governing PSAs (pooling and servicing agreements) and consistent with accepted industry practice,” Ocwen Executive Vice President Paul Koches told HousingWire.
…
While GMAC and Ocwen have shown that they’re ramping up writedown efforts, JPMorgan analysts said the effort is not seen industry wide.
“Bank servicers have not yet shown strong evidence of forgiveness,” analysts said.
Most lenders are loath to forgive principal for struggling homeowners. Lenders prefer to lower interest rates if they must do anything at all. That way the bank at least still has the right to collect the full amount lent. However, foreclosing on a property costs lenders more money than principal write-downs cost so in some cases the lenders go for that option. It is still rare but it appears it is becoming slightly less rare as of late.
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January 29th, 2011 at 7:42 am
I don’t know who on earth GMAC would help. I begged for help and was told NO!
April 24th, 2013 at 3:58 am
My mortgage is with Ocwen. I agree with the frustration with the outsourced call center staff. They really are quite useless. Now you have to remember, this is a Native American owned company and they are out to do nothing but make money. Because of their Native American status, they are not subject to a lot of the rules other companies would be.
I too have tried a loan modification 3-4 times. Each time I’m denied because of some loan to income ratio not being exactly 30%. I’m sure if I could get the paperwork to show that, then there would be another excuse.
Please keep in mind that the mortgage company doesn’t lose money if you default on your loan. That’s what the PMI is for. They get whatever difference from that insurance, plus they factor in all the interest they have already made off of you in the years before. They will always make out ahead. It’s not their job to care whether you have a house or not.
Just see Ocwen’s investor presentation for 2012.
http://www.sec.gov/Archives/edgar/data/873860/000101905612000748/ex99_1.htm
With a loan modification off the table, the next option is to short sale. Beware here too, because OCWEN will stick you with a bill for the difference, plus you will have to pay 1099 rate taxes on that as well. Still, you will have no house & some lucky person will have had the opportunity to buy it for what it was really worth, while your still paying the difference. This is a really bad & twisted idea. Who thought this gem up?
I saw online that there is this lawyer named steve beed who says that Ocwen has introduced a new program called the “SHARED APPRECIATION LOAN MODIFICATION”. Ocwen will receive 25% of Property future appreciation in return for reducing the principal balance to 95% of Fair Market Value, reduce the interest rate to 2% & forgive any deficiencies in 1/3 increments if the borrower stays current on their payments for the next 3 years. Sounds good, but I’m skeptical. I’m sure they’ve rolled this out for the PR Sound Bite alone, and in reality it will be next to impossible to qualify for… but I’m sure that will all reveal it’self shortly.
In the meantime, I am considering bankruptcy. Think of it this way… continuing to pour interest into a mortgage, while not even touching the principal on a house that during it’s life time will never see that return investment just does not make sense. period. First secure a place to live that you can stay put for a few years while your credit is still somewhat good. Second, secure all your assets in trusts, etc… Third, file bankruptcy. What this does is wipes all of the loans you report in the filing. You will then be debt free and after a few years you can start over from scratch. What I have found from people (including security cleared government workers) is that a person with no debt is more favorable to someone who is loaded with debt and paying on time. You truly do get penalized big time for doing the right thing.
After a few years you will be surprised to see that lenders will fall over themselves to have you start “reloading” your debt. seriously, this sounds crazy but it’s true. A friend of mine that did this is now (5 yrs later) buying a 1/2 million dollar house at the low 3% interest rates in Northern Virginia this very month. If I had just dumped my house as he recommended at the same time he did, I would be in the great shape he is in now. Live & learn.
Of course, if you can qualify for HARP & be refinanced in the 3’s%… worst case is that you can rent the place out, pay any difference out of your own pocket & pray that in 30yrs property values on a really old house will go back up and you’ll break even.
Another thing you may be able to do (if the house is only in 1 spouses name or you have a family member that can help you out) is to let it go into foreclosure, then have that other person buy it back at current market prices and the great interest rates we have now. You can be guaranteed that even if you get into a bidding war with someone, since you are emotionally involved (tho I advise you not to be), you will be willing to go higher than someone who is sheerly looking at the house as an investment vehicle and whatever you buy it for will be far, far less than you owe now. It’s only short sale that has rules relatives cant buy and that you can’t live in the house again. Just a thought….
Emotions and financial decisions are never a good mix. It is only a house & you will find another one. It’s better to think ahead and do this intelligently than to be unprepared and put yourself into an even worse situation that you will not be able to lift yourself out of. Break the ties when you see there is no place to go but down, buckle in, wait for the ride to end and then rebuild. I wish I had, although I am extremely lucky to have not been in a situation yet that forced my hand. I can still prepare. Better late than never.
See this article on Strategic defaults. Heck, the Airline industry and just about all companies do this on a daily basis… why not me? Am I dumber than an American company?
http://www.stayinmyhome.com/blog/2011/02/strategic-default-why-not/
oh, & btw… the only reason I bought the house at the price it was in the first place is because my fiance at the time was a real estate appraiser. He swore to me up and down that the house was worth the price and the values would only go up. I didn’t buy the house to make money or flip it… Now that my loan to value ratio is so extremely high, this affects my credit & it slaps me with PMI payments & other negative aspects. Additionally, what could have been a reasonable retirement safety net (thanks to welfare class eating my SS payments) or something in the event of a catastrophic illness like cancer that could provide a little emergency money… is now nothing but a black hole. Yeah, I could have sued him for his crappy appraisal skills, but so many other people sued him first that he lost his license and disappeared. Like I said – never let emotions and finance mix.
What I learned after living w/my real estate appraiser fiance (who set up his business in the office located in the house) is that the appraisal process was a partnership with the real estate agents. They would call him and say “Ed, I have a house that is for sale at x$’s. I need you to make that happen.” He would say “sure, I can finesse that for you.” As long as he found a way to make the #’s work… he kept the work rolling in. Once the banks dried up the mortgages and everyone was underwater, then he got sued left right and center by poor elderly people who had lost their entire life’s savings. I felt bad for everyone. So… this isn’t just the fault of predatory lenders or greedy people buying more house than they could afford thinking they could flip it or people sucking the equity out of their homes to finance stuff (although that did exist too)…. I think a large part of this false inflation was mostly enabled by the appraiser/real estate agent relationship. I saw it with my own eyes & I fell for it too.