Blogs For Victory

From Mish’s:

…Hey Mish,

I always found it humorous when you posted people’s dealing with their mortgage lender, hence my personal submission.

We applied for Fannie Mae’s mortgage modification program only to be denied during the probation period for paying too early. Evidently, paying your mortgage one day early signifies an “over willingness” to pay (i.e. keep current) and from FNM’s perspective. That means you can afford the original payment.

Here was my response:

“Look man, I’m on my second layoff in 2 1/2 years and my wife’s company is hanging by a thread so I think I’ll stop paying you now. For the next 6-12 months I’ll save what would normally be spent on carrying/maintaining our underwater mortgage, while you run through the process of foreclosing.

My loan’s non-recourse so no worries there. And we’ll have no problem renting a home just as nice for 1/3 the cost. The way I see it, I need incentives to stay.”

And that’s where I left it.

…Once someone decides to stop paying, the loan may be irrecoverable no matter what incentives the lender offers down the road. On the other hand, if the lender offers new terms to anyone who asks, everyone will ask. Either way the lender loses. Moreover, the lender may not easily be able to figure out which option is worse.

There are millions of people out there in the same situation and unless the banks start sweetening the loan modification deal, those millions will simply walk away. This, in turn, would drop housing prices even more, which would encourage ever more people to walk. The only solution: “cram down”. This is where the mortgage amount would be reduced to fair market value – a huge hit for banks and homeowners, but the only surefire way to keep people in their homes, and their homes off the market.