The New Housing Watchword: "Re-default"

There is plenty of blame to go around, not the least of which is the self-imposed ignorance, greed, and entitlement on the part of borrowers. The ultimate buck should stop with them. Even in light of fraudulent marketing, sales, and lending practices, borrowers agreed to loans for homes they otherwise would not have dared dream of owning. When we bought our second home - an upgrade for us - the lender commented right before closing that we were "buying poor" (industry lingo for buying much less home than our financials afforded us)...like it was some kind of stigma to have a healthy sense of price point for a home and stick close that budget. Fraud aside (and there's plenty of that, too), it doesn't take a rocket scientist to do the math when any number of people, on any number of occasions throughout the loan application/approval process, put a financial worksheet or contract information in front of these allegedly innocent borrowers and announced/explained their monthly mortgage obligations. This slipper slope was long in the making. Despite pleas of ignorance, this scenario has been the financial elephant in many rooms for a long time - from mortgage branches and banks to the halls and secret decoder ring wheeling dealing rooms of Congress. It is time for all involved to pay the piper, including hefty restitution and siezure of assets of the chief executives of involved companies and public hearing of Congressional figures. I am insulted when an involved CEO so graciously donates his annual salary to 'the cause.' Hello?!?!?!!!?? One year of salary for these folks is a mere drop in the bucket compared to the millions (possibly billions) they have already banked via their actions or mismanagement. It is nothing more than a hollow PR prank that might sting a little, but means nothing in the larger picture. The American people should not burden themselves with a single red dime more in purported bailout funds, which are clearly are not working and amount to nothing more that good money going to bad – bad (or stupid) people, bad business models, and practices!

I'm waiting for Barney Fife & Christopher Dolt to suggest we just give the homes to those who re-default.

I have heard several times that most of these people in reality by not putting any of their own money down and making interest only payments are only renting. This is a very true statement except for one small detail. When that house ages and they need a new roof or driveway or any other home repair it is going to be their responsibility. If you cant make the payments how are you going to make improvements. Then in time the home falls apart and then we get lower property values because of neglect. Its sad to see someone loose their home but in reality its not their home.I dont know the right answers but just putting a band aid on a amputated limb you are still going to bleed to death. Most of these home owners need to not only look whats best for them now, but what is better for them later on. And of coarse the ones of us that did put some of their own money down and continue the upkeep and make our payments (even when some months are tight and we could use the money elsewhere) will pick up the bill for the rest of the market. And just to add I am tired of hearing the statement well they bailed out the banks, auto ind, ect so wheres my bailout. STOP IT . We shouldnt feel that we all deserve a bailout. Pull up our bootstraps America. Get out of the way Washington. Let the people do their jobs and and we will be fine. Its hard to enjoy success when you have never suffered failure.

[...] The New Housing Watchword: “Re-default” at The Brian Sullivan Blog After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days [...]

The surprise is from Congress that some how believed that sub-prime was the wave of the future and that if it failed then it was not low enough. What we are experiencing in California was a consumer who had no chance to afford the "Dream Home". Realtors and brokers lead them into this mess, then the easy credit cards and lending finished them off. Wht can we not let them default, and let the market drive the housing industry?

Perhaps they are re-defaulting because THEY DON'T HAVE ANY MONEY! Doesn't matter what sort of "adjustment" they get; no money, no mortgage payment. Simple.

This is easier to understand than those trying to explain "an easy reason" here. It's called stupidity. Period. You signed the contract, you were supposed to read it. If you didn't, you are STUPID. Period. You gambled and lost.

The reason for the defaults in the first place are over infalted prices. A house is A PLACE TO liVE. The problem started when they started being used as investments for the homeowners and the banks. Stop selling mortgages as securities and over inflating a houses worth for money making purposes. The mortgage mess is a fallout of this practice.

Is it really a suprise to anyone that people who bought more house than they can afford, defaulted on the loan because they had not made even a minimal down payment, and got refinanced to get the PRINCIPAL lowered, would default again? These irrepsonsible people would never have been allowed to get a mortgage in the first place if the banks hadn't been strong armed into it by groups like Acorn and liberals in congress. Irresponsible people will continue to be irresponsible unless forced to face the consequences of their actions.

You can not have people who know nothing about banking fix or start a banking career. It is true that the people who received the mortgage bare the brunt of the mess we are in; however the bankers have a fiduciary duty to its depositors. It is immaterial how much money was or is in an economy or has the lowest interest rate the banker has a duty to protect the money that is entrusted to them. No banker of Mortgage Company should be lending money to people who they know can not pay it back in 5 years let alone 30 years. It is time that the people demand that the people save guarding their money have a basic knowledge of what, when, and how banking fits into our society and community. When bankers do their fiduciary duty no one who can't afford a mortgage, car, home equity, or credit card gets one. It does not take a financial wizard to understand that if you know someone cannot afford a 30 year mortgage (where the interest compounded is almost as much as the mortgage) selling it off does not erase your duty to your community. A trained monkey knows that if one person in a area defaults on their mortgage the whole area losses value, which means that tax rates on the property will either fall or be overly burdensome. If the taxes collected drops then basic services will have to be cut back hurting the community, county, and state. If you understood banking you know that and not make NINJA loans, or sub-prime loans. DAH!!!!!!!!!!!!!!!!!!!

"A report indicates that the mortgage aid programs are not working as hoped." Well DUH! Did anyone actually expect anything different? Did you ever watch that show; "Flip This House"? Real popular for a few years. This was the real estate version of day trading.

I am not sure why so many borrowers can't pay back any amount, but Barney Frank should know the answer.

Children are supposed to grow up when they leave their parents home. They live in the real world now. They suffer consequences for their behavior that they were insulated from under their parents supervision. These consequences hurt and they lear from their mistakes. They grow up thru experiencing these pains. Bailing people out does not help them. They do not learn from their mistakes. We are subsidizing immaturity and will have to do it again and again. Until we let them suffer the consequences of their own immature planning, spending etc.

I think the issue with "bad mortgages" is two fold: 1.) These folks are renting houses not buying them. They bought high put no money down and the value of the home is less than they owe so they walk away because aside from credit scores goinf down they have little "skin in the game". 2.) These folks assumed (they say when you assume something it makes an "a@$" out of "u" and "me") the value of the home would rise and they could sell it and make money if they discovered they could not afford to live in it. As many people don't sit down and look at cash flow they simply decide they want it and if the bank will lend me the money I must be able to afford it. The payments might have been ok for the customer during the teaser period but then the actual real payment hit after a year or two and wait a minute this house is really expensive!!! I think the government will wind up having to buy alot of these mortgages, kick the people out of the home, and hold for a very long time until buyers who can afford these homes can repurchase.

Brian, This is not surprising. Check out a study done earlier this year by Alan M. White an Assistant Professor at Valparaiso University. The study done from July 2007 thru June of 2008 of more than 106,000 loans from 26 different sub-prime mortgage pools originated in 2005 and 2006 found that 4,344 loan modifications were done. Here’s what was uncovered in this study: 19,911 properties went into foreclosure 8,327 properties were foreclosed upon and the bank now owned them Amount owed on modified loans went from $912 million to $933 million. (How can increasing what is owed actually help the homeowner afford their home?) 1.4% (62) had their principal balance lowered by more than 1% only .92% (40) had principal balance lowered by more than 10%. (Only 62 of the 4,344 modifications had principal balances lowered- how is that going to help people repay these loans?) 54% of modified loans had payments lowered, 23% raised payments 23% payments remained the same. (Shouldn’t 100% of the loans have lower payments if the goal is to make them more affordable?) Average interest rate on modified loans was 7.54%. (What? That rate is 1.5% above the market- how is that making the home more affordable?) What does this all mean? Well the lenders aren’t doing anybody any favors. It's no wonder 53% of modifications are back in default all they are really accomplishing is prolonging the problem and not providing a remedy for it. The FDIC plan is basically giving a 5 year reduction in payment which is not a permanent solution. I'm expecting another jump in foreclosure activity in another 5 years when these loans reset. We won't hear as much about it then because the banks will be able to better absorb them because it probably won't be accompanied by a $60 TRILLION loss due to the real cause of this crisis "CREDIT DEFAULT SWAPS." Why doesn't the media start in on Sheila Bair and the rest of the powers that be with this type of information? Just curious. If you want a copy of the report email me and I'll be happy to send it to you.

Once again, this illustrates what happens when you throw good money after bad. I'm not against helping out, but the homeowners whom obtained these mortages based upon significantly inflated home values and who could not possibily afford to pay their monthly amount based on their income levels, are certainly not going to be able to afford a re-structuring of their current mortage obligation. Especially when the economy continues to fail. The direction to push when it comes to helping out homeowners and business property owners is to re-structure mortages for those individuals who have shown, even in these hard times, that they continue to pay their mortage obligations, car loans, insurance payments and their heating bills! These are individuals who have shown to fullfill their debts, even if it means to forstall a trip, event or the extra something at Christmas for their loved ones. There are still people out there who give a damn about responsibility and did not over-finance and continue to watch their pennies. We seem to be "rewarding" those individuals and corporations that have acted irresponsibly, not the other way around. We have to stop rewarding bad behaviour. How about decreasing our mortage interest by 3 points or so (across the board, homeowner and business properties alike), that would certainly free up some needed cash for that stimulation the economy so rightly deserves. Maybe we should have done that in the first place!

I guess the obvious reason for the “Re-Defaults” eludes the experts again. The banks loaned money to people who should have never qualified for these loans in the first place. They couldn’t afford the original loan, can’t afford the reconfigured loan, and will not be able to afford the next round of mortgage welfare that comes along just to make congress feel “compassionate”.

Doesn't take rocket science. To force people into default to get help is wrong. Banks are generally punitive and instead of giving help when it truly should be given, they have to punish people first. Until jumbo loans and the fundamental reason for defaults is addressed it is only going to get worse. I have emailed constantly and have heard nothing addressing what is happening in the trenches with small business. Soon there will be no one with good enough credit to borrow. I had perfect credit until the Real Estate market crashed. Then credit lenders started raising my interest and reduced my ability to borrow and forced me into cash flow problems. It was manageable until the banks got greedy and basically created a self fulfilling prophecy. If banks want a bailout they should be required to honor original contract on loans and credit cards. Revolving credit is no longer revolving. American Express is a great example. Why were they allowed to become a bank? This has not helped me, it only allowed them time to gouge me more!